Library Work

SECOND DIVISION to a situation where the mortgagor had died, thus
necessitating personal notice to the latter's heirs for reasons

[G.R. No. 73678. July 21, 1989.] of justice and equity to enable the latter to pre-empt the
foreclosure sale through seasonable payment or subsequently
GUILLERMO CORTES and FLORENCIA P. CORTES, petitioners, make a seasonable redemption. In this present case, the
vs. THE INTERMEDIATE APPELLATE COURT, ARSENIO REYES, mortgagor was very much alive when the foreclosure sale was
DEVELOPMENT BANK OF THE PHILIPPINES and THE SHERIFF conducted. And more importantly petitioners were very much
OF KALOOKAN CITY, respondents. aware of their default (see IAC Decision, p. 28-29, Rollo) thus
the occurrence of the foreclosure sale depended upon their
SYLLABUS will.
1. REMEDIAL LAW; SPECIAL CIVIL ACTION; 6. ID.; ID.; ID.; INADEQUACY OF PRICE, NOT MATERIAL;
FORECLOSURE OF MORTGAGE; DEFAULT IN PAYMENT OF LOAN, REASON. Where there is a right to redeem, inadequacy of
JUSTIFIES FORECLOSURE UNDER REPUBLIC ACT NO. 3135. price is not material because the judgment debtor may re-
Petitioners defaulted in the payment of their loan to acquire the property or else sell his right to redeem and thus
respondent Development Bank of the Philippines (DBP). They recover any loss he claims to have suffered by reason of the
actually made only two installment payments. This justifies price obtained at the execution sale. Mere inadequacy of the
the subsequent foreclosure sale of the land in issue pursuant price obtained at the Sheriff's sale unless shocking to the
to Act 3135, as amended. conscience will not be sufficient also to set aside the sale if
there is no showing that, in the event of a regular sale, a
2. ID.; ID.; ID.; ID.; PERSONAL NOTICE OF SALE TO THE better price can be obtained. This is based on the theory that
MORTGAGOR, NOT NECESSARY. With respect to the the lesser the price the easier it will be for the owner to effect
requirement of notice, Section 3 of said Act states that notice the redemption. (Comment, p. 41, Rollo)
shall be given by posting notices of the sale for not less than
twenty days (20) in at least three (3) public places of the 7. ID.; EVIDENCE; FINDINGS OF FACT OF THE
municipality or city where the property is situated, and if such INTERMEDIATE APPELLATE COURT, CONCLUSIVE ON APPEAL.
property is worth more than four hundred pesos, such notice Petitioners assail the lower court's decision for not
shall also be published once a week for at least three awarding to them the said new house as owners hereof.
consecutive weeks in a newspaper of general circulation in Considering, however, the findings of fact of the respondent
the municipality or city. It is crystal clear from the above IAC, We are constrained to deny petitioners' plea. Not finding
provision that personal notice to the mortgagor is not any indiscretion on the part of respondent IAC, its findings of
necessary; only posting and publication, in some cases, are fact are conclusive upon us (Pring v. CA, supra; Premier
required. Insurance and Surety Corporation v. IAC, 141 SCRA 423; Vda.
de Roxas v. IAC, 143 SCRA 77; People v. Canada, 144 SCRA
3. ID.; EVIDENCE; RULES OF ADMISSIBILITY; 121).
INSTRUMENTS MUST BE INTERPRETED ACCORDING TO THE
SPECIFIC INTENTION OF THE PARTIES. In pleading their 8. CIVIL LAW; PROPERTY, OWNERSHIP AND ITS
case, petitioners invoke paragraph 10 of the Deed of MODIFICATIONS; RIGHT OF ACCESSION; OPTION UNDER
Mortgage points to a place (which, notably was clearly stated) ARTICLE 448 OF THE CIVIL CODE, AVAILABLE ONLY TO THE
where all correspondence relative to the mortgage are to be OWNER OF THE LAND AND NOT TO THE BUILDER OR
sent, it does it does not specifically require that personal PLANTER. The option under Art. 448 of the Civil Code, with
notice of foreclosure sale be given to petitioner. The said respect to any other useful improvements, is given to the
paragraph 10 presumes that a specific correspondence is owner of the land (the private respondent), and not to the
made but does not definitely require which correspondence petitioners, even assuming the latter acted in good faith.
must be made. It would, therefore, be erroneous to say that
notice of extrajudicial foreclosure to the petitioners is required DECISION
for such is not the clear intention of the parties, and, thus,
may not be pursued. (Rule 130, Section 10). But even if the PARAS, J p:
contrary were true, the sending of "All correspondence
relative to this mortgage . . ." to the petitioners may only be Sought to be reversed in this petition for review is the
deemed, at the most, as an expression of a general intent. As Decision * of the then Intermediate Appellate Court (IAC),
such, it may not prevail against the parties' specific intent Fourth Civil Cases Division, affirming in toto the findings and
that Act No. 3135 be the controlling law between them. This is conclusions of the then Court of First Instance of Rizal
so since "a particular intent will control a general one that is (Kalookan City).
inconsistent with it." (Rule 130, Sec. 10).
The following pertinent facts can be culled from the findings of
4. ID.; ID.; FINDINGS OF FACT OF THE LOWER AND the respondent court:
APPELLATE COURTS, ACCORDED GREAT RESPECT. Finding of
both the lower court and the respondent IAC, to which we "Plaintiffs' evidence shows that on June 23, 1959 plaintiffs
accord great respect and give much weight and value (Pring v. obtained a loan from defendant DBP in the sum of P1,700.00
CA, 138 SCRA 185; Rizal Cement Co., Inc. v. Villareal, 135 payable in semi-annual installments for ten (10) years or on or
SCRA 575). before June 23, 1969. Said loan is evidenced by a promissory
note (Exh. A for plaintiff) and was secured by a mortgage
5. ID.; SPECIAL CIVIL ACTION; FORECLOSURE OF (Exh. D) (should be Exhs. 1 and F) over a parcel of land
MORTGAGE; PEREZ CASE (17 SCRA 833), NOT APPLICABLE TO covered by TCT No. 67168 of the Registry of Deeds of Rizal in
PRESENT CASE. The case of Perez v. PNB, supra, could not the name of plaintiffs. The promissory note (Exh. A) states
possibly be applied to the case at bar since the former refers that in case of non-payment of the amount of said note or any
MichTrina Evidence Library Work Page 1

portion of it on demand, when due or any other amount or "10. All correspondence relative to this mortgage,
amounts due on account of this note the entire obligation including demand letters, summons, subpoenas, or
shall become due and demandable. When plaintiffs failed to notification of any judicial or extrajudicial action, shall be sent
pay the installments due on the loan after June 23, 1969 to the Mortgagor at _________ or at the address that may
(should be June 23, 1959) and after demand letters were sent hereafter be given in writing by the Mortgagor to the
to them, defendants DBP sent to the Sheriff of Kalookan City Mortgagee."
an Application for Foreclosure of Real Estate and Chattel
Mortgage (Exh. B). Pursuant to the said application, the City While the above stipulation points to a place (which, notably
Sheriff of Kalookan prepared the notice of extrajudicial sale of was clearly stated) where all correspondence relative to the
mortgaged properties under Act No. 3135 as amended (Exh. mortgage are to be sent, it does not specifically require that
C) which notice was duly posted. On April 6, 1966, the date of personal notice of foreclosure sale be given to petitioner. The
the auction sale as stated in the notice, the property covered said paragraph 10 presumes that a specific correspondence is
by the mortgage was sold to Mr. Arsenio Reyes as the highest made but does not definitely require which correspondence
bidder thereof." (pp. 23-24, Rollo) must be made. It would, therefore, be erroneous to say that
notice of extrajudicial foreclosure to the petitioners is required
Additionally, petitioners alleged that in 1968, after the auction for such is not the clear intention of the parties, and, thus,
sale had become final and after a new title over the property may not be pursued. (Rule 130, Section 10).
in question had already been issued in Arsenio Reyes' name,
they, purportedly without knowledge thereof, constructed a But even if the contrary were true, the sending of "All
new house over the said property. Upon learning for the first correspondence relative to this mortgage . . . " to the
time of the said foreclosure sale (i.e. when they received a petitioners may only be deemed, at the most, as an
copy of a Writ of Possession from the City Sheriff of Kalookan), expression of a general intent. As such, it may not prevail
petitioners filed a complaint dated 11 March 1969 (vide, against the parties' specific intent that Act No. 3135 be the
Record on Appeal, p. 37 Rollo) for "Declaration of Nullity of controlling law between them. This is so since "a particular
Extrajudicial Foreclosure Sale, Reconveyance, etc., with intent will control a general one that is inconsistent with it."
Damages." In its Decision dated 31 August 1976, the trial (Rule 130, Sec. 10). It is clear from the Deed of Mortgage that
court dismissed the aforesaid complaint, prompting an appeal the Mortgagee Bank (DBP) may, under any of the specific
by petitioners to the respondent Court, which court rendered circumstances enumerated, proceed to "foreclose this
its now questioned decision dated 23 September 1985. mortgage . . . extrajudicially under Act No. 3135, as
amended." (p. 28, Rollo). Having invoked the said Act, it shall
It is presently argued by petitioners that: (1) the extrajudicial "govern the manner in which the sale and redemption shall be
foreclosure is invalid and irregular since personal notice effected" (Sec. 1, Act 3135). And as already shown earlier Act
thereof was not given to them in their proper residence; (2) 3135 does not require personal notice of the foreclosure sale
they should have been allowed to redeem their property, even to the mortgagor. Incidentally, it was found by the trial court
after the consolidation of the title thereto in the purchaser's that notices of the foreclosure sale were duly posted and
name, in view of the absence of personal notice to them; (3) published in accordance with law. As such, petitioners are in
the petitioners must be considered the owners of the new estoppel; they cannot now deny that they were not informed
residential house on the property, erected after title to the of the said sale.
same had been consolidated in the purchaser's name; and (4)
in case the foreclosure is not valid, petitioners must be Banking on their premise of want of personal notice,
considered builders in good faith, thus entitled to the benefits petitioners now contend that they should be allowed to
provided in Article 448 of the Civil Code. redeem the property foreclosed as We did so permit in the
case of Perez v. PNB (17 SCRA 833). In the first place, however
1. The petitioners' first and second arguments are there was proper notice to petitioners in compliance with
devoid of merit. It has been satisfactorily shown that Section 3 of RA 3135. Such is the finding of both the lower
petitioners defaulted in the payment of their loan to court and the respondent IAC, to which we accord great
respondent Development Bank of the Philippines (DBP). They respect and give much weight and value (Pring v. CA, 138
actually made only two installment payments. This justifies SCRA 185; Rizal Cement Co., Inc. v. Villareal, 135 SCRA 575).
the subsequent foreclosure sale of the land in issue pursuant And secondly, the case of Perez v. PNB, supra, could not
to Act 3135, as amended. And with respect to the requirement possibly be applied to the case at bar since the former refers
of notice, Section 3 of said Act states: to a situation where the mortgagor had died, thus
necessitating personal notice to the latter's heirs for reasons
"Sec. 3. Notice shall be given by posting notices of the sale of justice and equity to enable the latter to pre-empt the
for not less than twenty days (20) in at least three (3) public foreclosure sale through seasonable payment or subsequently
places of the municipality or city where the property is make a seasonable redemption. In this present case, the
situated, and if such property is worth more than four hundred mortgagor was very much alive when the foreclosure sale was
pesos, such notice shall also be published once a week for at conducted. And more importantly petitioners were very much
least three consecutive weeks in a newspaper of general aware of their default (see IAC Decision, p. 28-29, Rollo) thus
circulation in the municipality or city." the occurrence of the foreclosure sale depended upon their
will.
It is crystal clear from the above provision that personal notice
to the mortgagor is not necessary; only posting and With regard to petitioner's misgiving as to the alleged
publication, in some cases, are required. discrepancy between the purchase price private respondent
paid (i.e., P2,140.00) and the value of the property, which
But in pleading their case, petitioners invoke paragraph 10 of they estimate to be no less than P20,000.00. We concur with
the Deed of Mortgage (vide, p. 28, Rollo) which provides: the respondent Bank's observations:

"In the first place, the amount of P20,000.00 is only an [G.R. No. 184081. June 19, 2009.]
arbitrary valuation placed by the petitioners on the property
foreclosed and not supported by any document or evidence to GLOBAL HOLIDAY OWNERSHIP CORPORATION, petitioner, vs.
justify such valuation. METROPOLITAN BANK & TRUST COMPANY, respondent.
"But even assuming the correctness of the valuation placed DECISION

by the petitioners on the property, the inadequacy of the price
at which it was sold at public auction does not invalidate the YNARES-SANTIAGO, J p:
foreclosure sale. As said by this Honorable Court in the case of
DBP v. Moll (43 SCRA 82): This petition for review on certiorari assails the March 31,
2008 Decision 1 of the Court of Appeals in CA-G.R. SP No.
"Where there is a right to redeem, inadequacy of price is not 97287, which annulled and set aside the July 26, 2006 and
material because the judgment debtor may re-acquire the October 6, 2006 Orders of the Regional Trial Court of Makati,
property or else sell his right to redeem and thus recover any Branch 146, granting petitioner's prayer for a writ of
loss he claims to have suffered by reason of the price preliminary injunction in Civil Case No. 06-549 and directed
obtained at the execution sale. Mere inadequacy of the price the judge to dissolve the said writ. Also assailed is the August
obtained at the Sheriff's sale unless shocking to the 7, 2008 Resolution 2 denying the motion for reconsideration.
conscience will not be sufficient also to set aside the sale if cHSIAC
there is no showing that, in the event of a regular sale, a
better price can be obtained. This is based on the theory that The facts as found by the appellate court are as follows:
the lesser the price the easier it will be for the owner to effect
the redemption." (Comment, p. 41, Rollo) Global Holiday Ownership Corporation (Global for short)
obtained on various dates several loans from . . . Metrobank in
2. Petitioners represent that in 1968, after the the total principal amount of P5,700,000.00 secured by a real
foreclosure sale and following the issuance of a new title to estate mortgage over a condominium unit under
the property in private respondent's name (as purchaser), Condominium Certificate of Title No. 29774 of the Registry of
they constructed a new residential house worth at least Deeds for Makati City. Upon default in the payment of the
P6,000.00, being unaware of said sale and transfer of loan, . . . Global requested for a restructuring of its loan in the
ownership. In the light of said circumstance, petitioners assail total principal amount of P6,375,000.00 as of September 3,
the lower court's decision for not awarding to them the said 2001. (Metrobank) acceded to its request.
new house as owners hereof. Considering, however, the
findings of fact of the respondent IAC, We are constrained to As . . . Global defaulted anew in the payment of its loan, it
deny petitioners' plea. Not finding any indiscretion on the part requested for another restructuring which was likewise
of respondent IAC, its findings of fact are conclusive upon us granted by the bank. Hence, a Debt Settlement Agreement
(Pring v. CA, supra; Premier Insurance and Surety Corporation was executed by the parties on November 15, 2001 detailing
v. IAC, 141 SCRA 423; Vda. de Roxas v. IAC, 143 SCRA 77; a schedule of payment of the principal obligation of
People v. Canada, 144 SCRA 121). Thus, the IAC said: P6,375,000.00 within a 3-year period up to August 19, 2004
as well (sic) the interest on the principal, payable quarterly
"Finally, We find no merit in plaintiffs' contention that the based on the prevailing market rates beginning December 2,
lower court erred in not declaring plaintiff as owner of the new 2001 and every 90 days thereafter, without need of notice or
residential house allegedly erected on the land in 1968 or demand, the full payment of which shall be on or before
after the auction sale on April 6, 1966. There is no evidence August 29, 2002.
that plaintiff constructed a new house in 1968 on the
mortgaged premises other than plaintiffs' own self-serving xxx xxx xxx
testimony. Plaintiffs did not even declare the said house for
taxation nor pay the taxes thereon. Neither had plaintiff Global failed to comply with the terms and conditions of the
informed defendant DBP and/or secured the latter's consent Debt Settlement Agreement. Despite demands made upon it
to the construction of the alleged new house. Paragraph 9 of for payment on December 22, 2005 and May 18, 2006, it still
the Mortgage Contract stipulates that the mortgagor shall not failed and refused to pay (Metrobank) the loans which are all
make any alteration upon or demolish any building or past due.
buildings herein mortgaged without the prior written consent
Thus on May 22, 2006, (Metrobank) requested the Clerk of
of the mortgagees" (IAC Decision, p. 30, Rollo).
Court of the RTC of Makati City to cause the sale at public
In view of what has been said in the preceding paragraphs, auction of CCT No. 29774 pursuant to Act 3135 as amended.
We find it needless to discuss the third assigned error, except The sale was scheduled on July 10, 2006 at 10:00 a.m. per
to say that the option under Art. 448 of the Civil Code, with notice of sheriff's sale.
respect to any other useful improvements, is given to the
Four (4) days before the date of the auction sale or on July 6,
owner of the land (the private respondent), and not to the
2006, . . . Global filed the instant complaint for annulment of
petitioners, even assuming the latter acted in good faith. Note
extrajudicial foreclosure proceedings, damages and injunction
that here, the private respondent has not even acted yet on
with application for TRO and/or writ of preliminary injunction.
his option.
Respondent judge granted Global's application for temporary
WHEREFORE, considering the above, we hereby DENY the restraining order on July 7, 2006 and set the prayer for a writ
present petition and AFFIRM the ruling of the respondent of preliminary injunction for hearing on July 14, 2006. After
Intermediate Appellate Court. SO ORDERED. hearing, respondent judge issued an Order on July 26, 2006
granting Global's application for a writ of preliminary
injunction. (Metrobank) moved to reconsider this Order but
THIRD DIVISION

respondent judge denied the motion in the Order dated (Metrobank) without Global's consent, in violation of mutuality
October 6, 2006. 3 HDcaAI of contract. Besides, there is already a perfected contract
between (Metrobank) and . . . Global to transfer the latter's
Metrobank filed a petition for certiorari before the Court of account to a special purpose vehicle company.
Appeals arguing that Global is not entitled to injunctive relief
because it has not shown that it had a legal right that must be Finally, . . . Global claimed that it has not waived its right to be
protected. Metrobank thus prayed that the trial court's notified of the foreclosure when it executed the Debt
issuances dated July 26, 2006 and October 6, 2006 be Settlement Agreement. The statement "without need of
annulled and set aside. demand" in the debt settlement agreement refers to the
payment of the principal and interest, which is different from
(Metrobank) stresses that in view of . . . Global's admission notice of extrajudicial foreclosure that is required to be given
that it failed to pay its loan, the latter has definitely no right in to a mortgagor. 4
esse to be protected as it was clearly provided in the deed of
real estate mortgage and in the Debt Settlement Agreement In the assailed March 31, 2008 Decision, the Court of Appeals
that the mortgage can be foreclosed by (Metrobank) in case of granted Metrobank's petition and set aside the July 26, 2006
default. and October 6, 2006 orders of the trial court, with a directive
to dissolve the writ of preliminary injunction it issued. The
(Metrobank) contends that . . . Global's claim of not having appellate court found that Global had no legal right to an
been notified of the foreclosure proceedings is debunked by injunction; that Metrobank had the undeniable right to
the Certification issued by the Makati Central Post Office foreclose on the real estate mortgage in view of Global's
dated August 2, 2006 stating that a copy of the notice of default in the settlement of its obligation to the bank; that
sheriff sale was sent to Global and was received by it on June Global had not shown any legal justification to enjoin it from
23, 2006. Moreover, (Metrobank's) several demand letters to . enforcing this right; that it is not required that Global be
. . Global urging it to pay its overdue account with a warning personally informed of the foreclosure of its mortgaged
that in case of failure to do, actions to protect the bank's property, since personal notice is not necessary; the
interests will be initiated, more than satisfies the requirement applicable law Act 3135 5 requires only notice by
of notice. Additionally, (Metrobank) emphasizes that Sec. 14 publication and posting; that under Administrative Matter No.
of the real estate mortgage was already superseded by Sec. 5 99-10-05-0 6 in relation to Act 3135, as amended, personal
of the Debt Settlement Agreement whereby Global waived its notice to the debtor-mortgagor in case of extrajudicial
right to be personally notified in case of default. foreclosure of real estate mortgage is not required; and that
by declaring that the foreclosure proceedings were defective
(Metrobank) argues that no personal notice of the extrajudicial and null and void, the trial court's issuances granting Global's
foreclosure is even required as said proceeding is an action in prayer for a writ of preliminary injunction constituted a
rem where only notice by publication and posting is necessary premature disposition of the case on its merits, a pre-
to bind the interested parties, citing Bobanan vs. Court of judgment that went beyond the nature of the proceeding then
Appeals, G.R. No. 111654, April 18, 1996. The law itself, Act being taken, which was merely for the issuance of a writ of
No. 3135, does not require personal notice to the mortgagor. preliminary injunction. 7
Only notice by publication and posting are required. Likewise,
(Metrobank) points to Administrative Matter No. 99-10-05-0 Global moved to reconsider the decision, however, it was
dated February 26, 2002 (Re: Procedure in the Extrajudicial denied by the Court of Appeals in the assailed August 7, 2008
Foreclosure of Mortgage) wherein the Supreme Court Resolution.
acknowledged that personal notice to the debtor-mortgagor in
case of extrajudicial foreclosure of real estate mortgage is not Hence, this petition by Global raising the following as errors:
required by Act No. 3135 as the addition of such requirement
can only make the proceedings cumbersome. First Assigned Error:
For its part, . . . Global avers that after it defaulted in its The Honorable Court of Appeals (erred in) ruling . . . that
quarterly payment under the Debt Settlement Agreement, personal notice to the debtor-mortgagor of the extrajudicial
(Metrobank) informed it on May 30, 2003 that its account is foreclosure is not necessary despite the parties' stipulation in
being considered for transfer to a Special Purpose Vehicle their Real Estate Mortgage contract requiring personal notice
under the SPV Act of 2002. Within the period given to signify thereof . . . . aIcDCH
its conformity to the plan, . . . Global wrote (Metrobank) on
July 4, 2003 informing (Metrobank) that it is (sic) amenable to Second Assigned Error:
its proposal to transfer the loan to a special purpose vehicle
company. Instead of transferring its account to a SPV The Honorable Court of Appeals seriously erred in its
Company, (Metrobank) decided to proceed with the interpretation and application of Supreme Court
extrajudicial foreclosure of the mortgaged property with the Administrative Matter No. 99-10-05-0 dated February 26, 2002
sheriff setting the auction sale on July 10, 2006. Such being that in extrajudicial foreclosure of real estate mortgage,
the case, there is nothing that can be ascribed in the July 26, personal notice to the debtor-mortgagor is not necessary.
2006 Order of respondent judge that could be considered
whimsical, capricious, arbitrary and despotic, . . . Global Third Assigned Error:
asserts. IECAaD
The Honorable Court of Appeals erred in applying the
Mere failure to pay a secured obligation, according to Global, superseded case of Cortez v. Intermediate Appellate Court
does not give the mortgagee bank the unbridled right to (G.R. No. 73678, July 21, 1989) in support of its ruling that the
foreclose the mortgage, more so in this case when the interest parties' stipulation in their Real Estate Mortgage contract
rate on a loan is unilaterally imposed or increased by requiring all correspondence relative to the mortgage to be

sent at the mortgagor's given address is a mere expression of received by the Mortgagor, or that it has been returned
"general intent" which cannot prevail over the parties' unclaimed to the Mortgagee, or that no person was found at
"specific intent" to apply the provisions of Act 3135 in the the address given, or that the address is fictitious, or cannot
extrajudicial foreclosure of the mortgage as the same is be located, shall not excuse or relieve the Mortgagor from the
contrary to subsequent rulings of the Supreme Court. effect of such notice. 8
Fourth Assigned Error This specific provision in the parties' real estate mortgage
agreement is the same provision involved in the case of
The Honorable Court of Appeals erred in relying on the cases Metropolitan Bank and Trust Company v. Wong, 9 where the
of BPI Family Savings Bank, Inc. v. Veloso, 436 SCRA 1; China Court made the following pronouncement:
Banking Corporation v. CA, 265 SCRA 327; and Selegna Mgnt.
& Devt. Corp. v. UCPB, G.R. No. 165662, May 3, 2006, to It is bad enough that the mortgagor has no choice but to yield
support its findings that petitioner has no clear legal right to his property in a foreclosure proceeding. It is infinitely worse,
be protected, since the trial court's issuance of the injunctive if prior thereto, he was denied of his basic right to be informed
writ was founded on the mortgagee's non-compliance with the of the impending loss of his property. This is another instance
stipulated personal notice to the mortgagor. when law and morals echo the same sentiment. cSIHCA
Fifth Assigned Error xxx xxx xxx
The Honorable Court of Appeals' ruling that there was no Thus, disregarding all factual issues which petitioner
perfected contract to transfer petitioner's account to a Special interjected in his petition, the only crucial legal queries in this
Purpose Vehicle despite its finding that respondent MBTC case are: first, is personal notice to respondent a condition
made a proposal thereon to GHOC is contrary to the provision sine qua non to the validity of the foreclosure proceedings?
of Article 1319 of the Civil Code of the Philippines since there and, second, is petitioner's non-compliance with the posting
was unqualified acceptance of the proposal. requirement under Section 3, Act No. 3135 fatal to the validity
of the foreclosure proceedings?
Sixth Assigned Error
In resolving the first query, we resort to the fundamental
The Honorable Court of Appeals erroneously ruled that principle that a contract is the law between the parties and,
petitioner was personally notified of the foreclosure that absent any showing that its provisions are wholly or in
proceedings as evidenced by the Certification of the Clerk of part contrary to law, morals, good customs, public order, or
Court of Makati RTC when such Certification is non-existent in public policy, it shall be enforced to the letter by the courts.
the records of the case. caITAC Section 3, Act No. 3135 reads:
Seventh Assigned Error "Sec. 3. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
The Honorable Court of Appeals erred in denying petitioner's the municipality or city where the property is situated, and if
Motion for Reconsideration despite the apparent falsified such property is worth more than four hundred pesos, such
Certification submitted by respondent thru its Comment to the notice shall also be published once a week for at least three
motion. consecutive weeks in a newspaper of general circulation in
the municipality and city."
Eighth Assigned Error
The Act only requires (1) the posting of notices of sale in three
The Honorable Court of Appeals seriously erred in finding that public places, and (2) the publication of the same in a
the grant by the trial court of the injunctive writ is completely newspaper of general circulation. Personal notice to the
without justification and in grave abuse of its discretion. mortgagor is not necessary. Nevertheless, the parties to the
mortgage contract are not precluded from exacting additional
The issues for resolution are: whether Metrobank's failure to requirements. In this case, petitioner and respondent in
serve personal notice upon Global of the foreclosure entering into a contract of real estate mortgage, agreed inter
proceedings renders the same null and void; and whether the alia:
trial court properly issued a writ of injunction to prevent
Metrobank from proceeding with the scheduled auction sale of "all correspondence relative to this mortgage, including
Global's condominium unit. demand letters, summonses, subpoenas, or notifications of
any judicial or extra-judicial action shall be sent to the
We grant the petition. MORTGAGOR at 40-42 Aldeguer St., Iloilo City, or at the
address that may hereafter be given in writing by the
Paragraph 14 of the real estate mortgage contract states that: MORTGAGOR to the MORTGAGEE."
All correspondence relative to this mortgage, including Precisely, the purpose of the foregoing stipulation is to apprise
demand letters, summonses, subpoenas or notifications of respondent of any action which petitioner might take on the
any judicial or extra-judicial actions shall be sent to the subject property, thus according him the opportunity to
Mortgagor at the address hereinabove given or at the address safeguard his rights. When petitioner failed to send the notice
that may hereafter be given in writing by the Mortgagor to the of foreclosure sale to respondent, he committed a contractual
Mortgagee, and the mere act of sending any correspondence breach sufficient to render the foreclosure sale on November
by mail or by personal delivery to the said address shall be 23, 1981 null and void. 10 (Emphasis supplied) AHSaTI
valid and effective notice to the Mortgagor for all legal
purposes, and the fact that any communication is not actually

We do not see how a different outcome could have been the mortgagor's benefit, but for the public or third persons. 15
expected in the present case which involves the same Taking this into context, the stipulation in the mortgage
contractual provision as that in the abovementioned case agreement requiring notice to the mortgagor of extrajudicial
not to mention the same mortgagee. In cases subsequent to actions to be taken operates as a contractual undertaking for
Wong, we sustained the same principle: that personal notice the latter's sole benefit, such that the mortgagee is mandated
to the mortgagor in extrajudicial foreclosure proceedings is to strictly abide by the same.
not necessary, unless stipulated. 11
Metrobank claims that Cortes v. Intermediate Appellate Court
If respondent wanted to rid itself of the effects of the Court's 16 should be applied in the resolution of the present
pronouncement in Wong, considering that it was a party to the controversy. In said case, the Court held:
case and knows firsthand about the Court's disposition, it
should have caused the deletion of Paragraph 14 from all its But in pleading their case, petitioners invoke paragraph 10 of
subsequent standard form real estate mortgage agreements, the Deed of Mortgage (vide, p. 28, Rollo) which provides:
or if not, modified the provision or the contracts accordingly. A
modification of the mortgage contract on this point, with "10. All correspondence relative to this mortgage,
respect to Global, would not have been difficult; an addendum including demand letters, summons, subpoenas, or
would have sufficed. notification of any judicial or extrajudicial action, shall be sent
to the Mortgagor at _________ or at the address that may
hereafter be given in writing by the Mortgagor to the
Mortgagee."
Taking from Wong, we must interpret Paragraph 14 of the
parties' mortgage contract as one having been made for the While the above stipulation points to a place (which, notably
benefit of the mortgagor, and one which Metrobank knowingly was clearly stated) where all correspondence relative to the
incorporated into the agreement. Having been in the business mortgage are to be sent, it does not specifically require that
of banking since 1962 or for more than forty years now it personal notice of foreclosure sale be given to petitioner. The
certainly had the knowledge, experience and the resources to said paragraph 10 presumes that a specific correspondence is
correct any perceived oversight it was guilty of making in the made but does not definitely require which correspondence
past with respect to its contracts. Although we do not view must be made. It would, therefore, be erroneous to say that
Paragraph 14 to be one such oversight; as we have declared notice of extrajudicial foreclosure to the petitioners is required
in Wong, the purpose of said stipulation is benign: to apprise for such is not the clear intention of the parties, and, thus,
the mortgagor of any action which Metrobank might take on may not be pursued. (Rule 130, Section 10).
the subject property, thus according him the opportunity to
safeguard his rights. We cannot allow Metrobank to disavow But even if the contrary were true, the sending of "All
its solemn covenant with Global, to turn its back on a contract correspondence relative to this mortgage . . . " to the
which it prepared on its own, without the intervention of the petitioners may only be deemed, at the most, as an
other party. A party should not, after having its opportunity to expression of a general intent. As such, it may not prevail
enjoy the benefits of an agreement, be allowed to later against the parties' specific intent that Act No. 3135 be the
disown the arrangement when the terms thereof ultimately controlling law between them. This is so since "a particular
would prove to operate against its hopeful expectations. 12 intent will control a general one that is inconsistent with it."
(Rule 130, Sec. 10). It is clear from the Deed of Mortgage that
The business of banking is imbued with public interest. It the Mortgagee Bank (DBP) may, under any of the specific
carries with it a fiduciary duty that requires high standards of circumstances enumerated, proceed to "foreclose this
integrity and performance. 13 Our decision in Wong was not a mortgage . . . extrajudicially under Act No. 3135, as
mere declaration of what the law is on a given point; its amended." (p. 28, Rollo). Having invoked the said Act, it shall
underlying message is our acknowledgment that banks must "govern the manner in which the sale and redemption shall be
play a compassionate role amidst these changing times. That effected" (Sec. 1, Act 3135). And as already shown earlier Act
in the wake of huge profits being made from their operations, 3135 does not require personal notice of the foreclosure sale
all that is required is for them to inform the borrower of the to the mortgagor. Incidentally, it was found by the trial court
impending loss of his property when their covenants require that notices of the foreclosure sale were duly posted and
it. This is a valid argument when viewed within the context of published in accordance with law. As such, petitioners are in
the principle that any attempt to vest ownership of the estoppel; they cannot now deny that they were not informed
encumbered property in the mortgagee without proper of the said sale. 17 (Emphasis supplied) HcaATE
observance of the requirements of law is against public policy.
14 AaHDSI But what is stated in Cortes no longer applies in light of the
Court's rulings in Wong and all the subsequent cases, which
Paragraph 14 is clear that "all correspondence relative to this have been consistent. Cortes has never been cited in
mortgage, including demand letters, summonses, subpoenas subsequent rulings of the Court, nor has the doctrine therein
or notifications of any judicial or extrajudicial actions shall be ever been reiterated. Its doctrinal value has been diminished
sent to the mortgagor at the address hereinabove given or at by the policy enunciated in Wong and the subsequent cases;
the address that may hereafter be given in writing by (it)." It that is, that in addition to Section 3 of Act 3135, the parties
must be recalled that the principal object of a notice of sale in may stipulate that personal notice of foreclosure proceedings
a foreclosure of mortgage is not so much to notify the may be required. Act 3135 remains the controlling law, but
mortgagor as to inform the public generally of the nature and the parties may agree, in addition to posting and publication,
condition of the property to be sold, and of the time, place, to include personal notice to the mortgagor, the non-
and terms of the sale. Notices are given to secure bidders and observance of which renders the foreclosure proceedings null
prevent a sacrifice of the property. Clearly, the statutory and void, since the foreclosure proceedings become an illegal
requirements of posting and publication are mandated, not for

attempt by the mortgagee to appropriate the property for Given the merits of the case, we are not at this point inclined
itself. to dismiss the petition, on respondent's argument that there
was a defective verification and certification accompanying
Thus, we restate: the general rule is that personal notice to the present petition. We can simply require petitioner to
the mortgagor in extrajudicial foreclosure proceedings is not submit proof of its President Pedro P. Diomampo's authority to
necessary, and posting and publication will suffice. Sec. 3 of sign the petition in its behalf, but we no longer see the need
Act 3135 governing extra-judicial foreclosure of real estate to do the same at this late stage. Under the parties' mortgage
mortgages, as amended by Act 4118, requires only posting of agreement, Global was formerly named Diomampo Industries,
the notice of sale in three public places and the publication of Inc.; 22 certainly, we have been equally less rigid in previous
that notice in a newspaper of general circulation. The cases. 23
exception is when the parties stipulate that personal notice is
additionally required to be given the mortgagor. Failure to We agree with the appellate court that Metrobank had every
abide by the general rule, or its exception, renders the right to choose whether to foreclose on the mortgage or to
foreclosure proceedings null and void. 18 transfer Global's account to a special purpose vehicle. In this
respect, Global has no right to interfere. Besides, what
Global's right to be furnished with personal notice of the Metrobank conveyed to Global about transferring the latter's
extrajudicial foreclosure proceedings has been established. account to a special purpose vehicle was that it was merely
Thus, to continue with the extrajudicial sale without proper considering such move; eventually, it wrote Global of its
notice would render the proceedings null and void; injunction decision not to exercise the option, and proceed with
is proper to protect Global's rights and to prevent unnecessary foreclosure of the mortgage instead. In the first place,
injury that would result from the conduct of an irregular sale. whether Global's account could qualify for transfer to a special
It is beyond question that a writ of preliminary injunction is purpose vehicle is not for the latter to determine; under the
issued to prevent an extrajudicial foreclosure, upon a clear Special Purpose Vehicle Act of 2002, 24 the decision belongs
showing of a violation of the mortgagor's unmistakable right. to the appropriate regulatory authority.
19 The trial court was thus correct in granting an injunction.
Penultimately, we do not subscribe to Metrobank's argument
Metrobank's reliance on Ardiente v. Provincial Sheriff 20 is that the foreclosure proceedings should continue, since Global
misplaced. The cited case is merely a reiteration of the is not without adequate protective remedy, like annotation of
general rule, since the parties therein did not stipulate in their lis pendens, participating in the auction sale, or redemption.
mortgage agreement that personal notice of judicial or Annotation of lis pendens is unnecessary, since the issue may
extrajudicial actions shall be furnished the mortgagor. now be resolved at this point; participating in null and void
foreclosure proceedings is no valid option, just as well as
Neither can the circumstance that Global received a notice of redeeming the property following a void auction sale.
sheriff's sale from the Office of the Clerk of Court of the cTAaDC
Regional Trial Court of Makati City cure the defect occasioned
by Metrobank's violation of its covenant under the mortgage Finally, the granting of the writ of preliminary injunction would
agreement. As already stated, the object of a notice of sale in not in effect dispose of the main case without trial. The
a foreclosure of mortgage is not for the mortgagor's benefit, granting of the writ would only enjoin the foreclosure of the
but for the public or third persons; on the other hand, the mortgage for lack of personal notice, and the status quo
undertaking in a mortgage deed to notify the mortgagor of all would be maintained. It does not prevent Metrobank from
judicial or extrajudicial actions relative to the mortgage is foreclosing on the mortgage after giving personal notice. The
especially for the mortgagor's benefit, so that he may only lesson to be learned from the present case is that the law
safeguard his rights. IAEcaH must be followed to the letter; no shortcuts are allowed. 25
Under the parties' Debt Settlement Agreement, 21 Global's WHEREFORE, the petition is GRANTED. The March 31, 2008
obligation was reduced (Metrobank waived the penalties Decision and August 7, 2008 Resolution of the Court of
incurred), but the agreement carried a proviso that if such Appeals in CA-G.R. SP No. 97287 are hereby ANNULLED and
reduced obligation was not timely settled and Global SET ASIDE. The July 26, 2006 and October 6, 2006 Orders of
defaulted on two consecutive amortizations, Metrobank shall the Regional Trial Court of Makati, Branch 146 are REINSTATED
be entitled to treat Global's obligation as outstanding, impose and AFFIRMED. SO ORDERED.
a penalty at the rate of 18% per annum, and/or foreclose on
the real estate mortgage, without need of demand. According THIRD DIVISION
to Metrobank, this provision in the Debt Settlement
Agreement resulted in a waiver by Global of the required [G.R. No. 142838. August 9, 2001.]
personal notice under Paragraph 14 of the mortgage contract.
ABELARDO B. LICAROS, petitioner, vs. ANTONIO P.
We disagree. Demand here relates to the principal obligation, GATMAITAN, respondent.
which shall become due and demandable and shall incur
interest and penalties without need of informing Global, were Martinez and Perez Law Offices for petitioner.
the conditions of the Debt Settlement Agreement not
observed. It does not relieve Metrobank of its obligation under Belo Gozon Parel Asuncion & Liciila for private respondent.
Paragraph 14 of the Mortgage Contract, which is a separate
agreement, distinct and apart from the Debt Settlement SYNOPSIS
Agreement. As we have said, only an addendum or
modification of the mortgage agreement can relieve The Anglo-Asean Bank and Trust Limited (Anglo-Asean), is a
Metrobank of the adverse effects of Paragraph 14. private bank registered and organized to do business under
the laws of the Republic of Vanuatu but not in the Philippines.

Its business consists primarily in receiving fund placements by process of transferring the right of the assignor to the
way of deposits from institutions and individual investors from assignee who would then have the right to proceed against
different parts of the world. Enticed by the lucrative prospects the debtor. The assignment may be done gratuitously or
of doing business with Anglo-Asean, Abelardo Licaros, a onerously, in which case, the assignment has an effect similar
Filipino businessman, decided to make a fund placement with to that of a sale.
said bank sometime in the 1980's. After having invested in
Anglo-Asean, he encountered tremendous and unexplained 2. ID.; ID.; SUBROGATION; DEFINED. On the other
difficulties in retrieving, not only the interest or profits, but hand, subrogation has been defined as the transfer of all the
also the very investments he had put in Anglo-Asean. He rights of the creditor to a third person, who substitutes him in
decided to seek the counsel of Antonio P. Gatmaitan, a all his rights. It may either be legal or conventional. Legal
reputable banker and investment manager who had been subrogation is that which takes place without agreement but
extending managerial, financial and investment consultancy by operation of law because of certain acts. Conventional
services to various firms and corporations both here and subrogation is that which takes place by agreement of parties.
abroad. Gatmaitan voluntarily offered to assume the payment
of Anglo-Asean's indebtedness to Licaros subject to certain 3. ID.; ID.; ID.; DISTINGUISHED FROM ASSIGNMENT OF
terms and conditions. In order to effectuate and formalize the CREDIT. The general tenor of the foregoing definitions of
parties' respective commitments, the two executed a the terms "subrogation" and "assignment of credit" may make
notarized memorandum of agreement. Thereafter, Gatmaitan it seem that they are one and the same which they are not. A
presented to Anglo-Asean the said memorandum of noted expert in civil law notes their distinctions thus: "Under
agreement for the purpose of collecting Licaros' placement our Code, however, conventional subrogation is not identical
thereat. No formal response was ever made by said bank to to assignment of credit. In the former, the debtor's consent is
either Licaros or Gatmaitan. Evidently, because of his inability necessary; in the latter it is not required. Subrogation
to collect from Anglo-Asean, Gatmaitan did not bother extinguishes the obligation and gives rise to a new one;
anymore to make good his promise to pay Licaros the amount assignment refers to the same right which passes from one
stated in his promissory note. Licaros, however, thought person to another. The nullity of an old obligation may be
differently. He felt that he had a right to collect on the basis of cured by subrogation, such that a new obligation will be
the promissory note regardless of the outcome of Gatmaitan's perfectly valid; but the nullity of an obligation is not remedied
recovery efforts. Thus, Licaros, thru counsel, addressed by the assignment of the creditor's right to another." For our
successive demand letters to Gatmaitan; demanding payment purposes, the crucial distinction deals with the necessity of
of the latter's obligations under the promissory note. the consent of the debtor in the original transaction. In an
Gatmaitan, however, did not accede to these demands. assignment of credit, the consent of the debtor is not
Licaros filed a complaint in the Regional Trial Court of Makati necessary in order that the assignment may fully produce
and prayed that Gatmaitan should pay him the principal legal effects. What the law requires in an assignment of credit
obligation, attorney's fees, and legal interest. After trial on the is not the consent of the debtor but merely notice to him as
merits, the court a quo rendered judgment in favor of the assignment takes effect only from the time he has
petitioner Licaros. Respondent Gatmaitan appealed the trial knowledge thereof. A creditor may, therefore, validly assign
court's decision to the Court of Appeals. In a decision his credit and its accessories without the debtor's consent. On
promulgated on February 10, 2000, the appellate court the other hand, conventional subrogation requires an
reversed the decision of the trial court and held that agreement among the three parties concerned the original
respondent Gatmaitan did not at any point become obligated creditor, the debtor, and the new creditor. It is a new
to pay to petitioner Licaros the amount stated in the contractual relation based on the mutual agreement among
promissory note. The Court of Appeals also denied petitioner's all the necessary parties. Thus, Article 1301 of the Civil Code
Motion for Reconsideration. Hence this petition for review. The explicitly states that "(C)onventional subrogation of a third
threshold issue for the determination of the Supreme Court is person requires the consent of the original parties and of the
whether the memorandum of agreement between petitioner third person." SaIACT
and respondent was one of assignment of credit or one of
conventional subrogation. CTAIHc 4. ID.; ID.; INTERPRETATION THEREOF; AS A RULE,
VARIOUS STIPULATIONS SHALL BE INTERPRETED TOGETHER
The Supreme Court agreed with the finding of the Court of ATTRIBUTING TO THE DOUBTFUL ONES THAT SENSE WHICH
Appeals that the Memorandum of Agreement was in the MAY RESULT FROM ALL OF THEM TAKEN JOINTLY; APPLICATION
nature of a conventional subrogation which requires the IN CASE AT BAR. It is a basic rule in the interpretation of
consent of the debtor, Anglo-Asean Bank, for its validity. The contracts that "(t)he various stipulations of a contract shall be
Memorandum of Agreement never came into effect due to the interpreted together, attributing to the doubtful ones that
failure of the parties to get the consent of Anglo-Asean Bank sense which may result from all of them taken jointly."
and, as such, respondent never became liable for the amount Moreover, under our Rules of Court, it is mandated that "(i)n
stipulated therein. The absence of such conformity by Anglo- the construction of an instrument where there are several
Asean Bank prevented the Memorandum of Agreement from provisions or particulars, such a construction is, if possible, to
becoming valid and effective. Accordingly, the Court of be adopted as will give effect to all." Further, jurisprudence
Appeals did not err when it ruled that the Memorandum of has laid down the rule that contracts should be so construed
Agreement was never perfected. The Supreme Court denied as to harmonize and give effect to the different provisions
the petition and affirmed the decision of the Court of Appeals. thereof. In the case at bench, the Memorandum of Agreement
embodies certain provisions that are consistent with either a
SYLLABUS conventional subrogation or assignment of credit. It has not
been shown that any clause or provision in the Memorandum
1. CIVIL LAW; CONTRACTS; ASSIGNMENT OF CREDIT; of Agreement is inconsistent or incompatible with a
DEFINED. An assignment of credit has been defined as the conventional subrogation. On the other hand, the two cited

provisions requiring consent of the debtor to the corporations both here and abroad. To Licaros' relief,
memorandum is inconsistent with a contract of assignment of Gatmaitan was only too willing enough to help. Gatmaitan
credit. Thus, if we were to interpret the same as one of voluntarily offered to assume the payment of Anglo-Asean's
assignment of credit, then the aforementioned stipulations indebtedness to Licaros subject to certain terms and
regarding the consent of Anglo-Asean Bank would be rendered conditions. In order to effectuate and formalize the parties'
inutile and useless considering that, as previously discussed, respective commitments, the two executed a notarized
the consent of the debtor is not necessary in an assignment of MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. "B";
credit. also Exhibit "1"), the full text of which reads:
5. ID.; ID.; ID.; QUESTION OF LAW MAY NOT BE THE 'Memorandum of Agreement
SUBJECT OF STIPULATIONS AND ADMISSIONS; CASE AT BAR.
With respect to the argument of petitioner that respondent KNOW ALL MEN BY THESE PRESENTS:
himself allegedly admitted in open court that an assignment
of credit was intended, it is enough to say that respondent This MEMORANDUM OF AGREEMENT made and executed this
apparently used the word "assignment" in his testimony in the 29th day of July 1988, at Makati by and between:
general sense. Respondent is not a lawyer and as such, he is
not so well versed in law that he would be able to distinguish ABELARDO B. LICAROS, Filipino, of legal age and holding office
between the concepts of conventional subrogation and of at Concepcion Building, Intramuros, Manila hereinafter
assignment of credit. Moreover, even assuming that there was referred to as THE PARTY OF THE FIRST PART,
an admission on his part, such admission is not conclusive on
this court as the nature and interpretation of the and
Memorandum of Agreement is a question of law which may
not be the subject of stipulations and admissions. ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7
Mangyan St., La Vista, hereinafter referred to as the PARTY OF
DECISION THE SECOND PART, cEHSIC
GONZAGA-REYES, J p: WITNESSETH THAT:
This is a petition for review on certiorari under Rule 45 of the WHEREAS, ANGLO-ASEAN BANK & TRUST, a company
Rules of Court. The petition seeks to reverse and set aside the incorporated by the Republic of Vanuatu, hereinafter referred
Decision 1 dated February 10, 2000 of the Court of Appeals to as the OFFSHORE BANK, is indebted to the PARTY OF THE
and its Resolution 2 dated April 7, 2000 denying petitioner's FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY
Motion for Reconsideration thereto. The appellate court THOUSAND ONLY (US$150,000) which debt is now due and
decision reversed the Decision 3 dated November 11, 1997 of demandable.
the Regional Trial Court of Makati, Branch 145 in Civil Case No.
96-1211. acIASE WHEREAS, the PARTY OF THE FIRST PART has encountered
difficulties in securing full settlement of the said indebtedness
The facts of the case, as stated in the Decision of the Court of from the OFFSHORE BANK and has sought a business
Appeals dated February 10, 2000, are as follows: arrangement with the PARTY OF THE SECOND PART regarding
his claims;
"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for
brevity), is a private bank registered and organized to do WHEREAS, the PARTY OF THE SECOND PART, with his own
business under the laws of the Republic of Vanuatu but not in resources and due to his association with the OFFSHORE
the Philippines. Its business consists primarily in receiving BANK, has offered to the PARTY OF THE FIRST PART to assume
fund placements by way of deposits from institutions and the payment of the aforesaid indebtedness, upon certain
individual investors from different parts of the world and terms and conditions, which offer, the PARTY OF THE FIRST
thereafter investing such deposits in money market PART has accepted; SEACTH
placements and potentially profitable capital ventures in
Hongkong, Europe and the United States for the purpose of WHEREAS, the parties herein have come to an agreement on
maximizing the returns on those investments. the nature, form and extent of their mutual prestations which
they now record herein with the express conformity of the
Enticed by the lucrative prospects of doing business with third parties concerned;
Anglo-Asean, Abelardo Licaros, a Filipino businessman,
decided to make a fund placement with said bank sometime NOW, THEREFORE, for and in consideration of the foregoing
in the 1980's. As it turned out, the grim outcome of Licaros' and the mutual covenants stipulated herein, the PARTY OF
foray in overseas fund investment was not exactly what he THE FIRST PART and the PARTY OF THE SECOND PART have
envisioned it to be. More particularly, Licaros, after having agreed, as they do hereby agree, as follows:
invested in Anglo-Asean, encountered tremendous and
1. The PARTY OF THE SECOND PART hereby undertakes
unexplained difficulties in retrieving, not only the interest or
to pay the PARTY OF THE FIRST PART the amount of US
profits, but even the very investments he had put in Anglo-
DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000)
Asean.
payable in Philippine Currency at the fixed exchange rate of
Confronted with the dire prospect of not getting back any of Philippine Pesos 21 to US$1 without interest on or before July
his investments, Licaros then decided to seek the counsel of 15, 1993.
Antonio P. Gatmaitan, a reputable banker and investment
For this purpose, the PARTY OF THE SECOND PART shall
manager who had been extending managerial, financial and
execute and deliver a non negotiable promissory note,
investment consultancy services to various firms and

bearing the aforesaid material consideration in favor of the WITH ASSIGNMENT OF CASH DIVIDENDS
PARTY OF THE FIRST PART upon execution of this
MEMORANDUM OF AGREEMENT, which promissory note shall This promissory note is Annex A of the Memorandum of
form part as ANNEX A hereof. HSEcTC Agreement executed between Abelardo B. Licaros and Antonio
P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an
2. For and in consideration of the obligation of the integral part of said Memorandum of Agreement.
PARTY OF THE SECOND PART, the PARTY OF THE FIRST does
hereby; P3,150,000.
a. Sell, assign, transfer and set over unto the PARTY OF On or before July 15, 1993, I promise to pay to Abelardo B.
THE SECOND PART that certain debt now due and owing to the Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000)
PARTY OF THE FIRST PART by the OFFSHORE BANK, to the without interest as material consideration for the full
amount of US Dollars One Hundred Fifty Thousand plus settlement of his money claims from ANGLO-ASEAN BANK,
Interest due and accruing thereon; referred to in the Memorandum of Agreement as the
'OFFSHORE BANK'. THDIaC
b. Grant the PARTY OF THE SECOND PART the full power
and authority, for his own use and benefit, but at his own cost As security for the payment of this Promissory Note, I hereby
and expense, to demand, collect, receive, compound, ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL
compromise and give acquittance for the same or any part CASH DIVIDENDS, that may be due or owing to me as the
thereof, and in the name of the PARTY OF THE FIRST PART, to registered owner of ________________ (________) shares of stock
prosecute, and withdraw any suit or proceedings therefor; in the Prudential Life Realty, Inc.
AcTDaH
This assignment shall likewise include SEVENTY PERCENT
c. Agree and stipulate that the debt assigned herein is (70%) of cash dividends that may be declared by Prudential
justly owing and due to the PARTY OF THE FIRST PART from Life Realty, Inc. and due or owing to Prudential Life Plan, Inc.,
the said OFFSHORE BANK, and that the PARTY OF THE FIRST of which I am a stockholder, to the extent of or in proportion
PART has not done and will not cause anything to be done to to my aforesaid shareholding in Prudential Life Plan, Inc., the
diminish or discharge said debt, or to delay or prevent the latter being the holding company of Prudential Life Realty, Inc.
PARTY OF THE SECOND PART from collecting the same; and;
In the event that I decide to sell or transfer my aforesaid
d. At the request of the PARTY OF SECOND PART and the shares in either or both the Prudential Life Plan, Inc. or
latter's own cost and expense, to execute and do all such Prudential Life Realty, Inc. and the Promissory Note remains
further acts and deeds as shall be reasonably necessary for unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros
proving said debt and to more effectually enable the PARTY OF the first option to buy the said shares. SEDICa
THE SECOND PART to recover the same in accordance with the
true intent and meaning of the arrangements herein. Manila, Philippines
IN WITNESS WHEREOF, the parties have caused this July ____, 1988
MEMORANDUM OF AGREEMENT to be signed on the date and
place first written above. (SGD.)
Sgd. Sgd. Antonio P. Gatmaitan
ABELARDO B. LICAROS ANTONIO P. GATMAITAN 7 Mangyan St., La Vista, QC
PARTY OF THE FIRST PART PARTY OF THE FIRST PART Signed in the Presence of
WITH OUR CONFORME: (SGD.)
ANGLO-ASEAN BANK & TRUST ________________ _______________
BY: (Unsigned) Francisco A. Alba
SIGNED IN THE PRESENCE OF. President, Prudential Life Plan, Inc.".
Sgd. (illegible) Thereafter, Gatmaitan presented to Anglo-Asean the

Memorandum of Agreement earlier executed by him and
_________________________ _________________________ Licaros for the purpose of collecting the latter's placement
thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean
Conformably with his undertaking under paragraph 1 of the allegedly committed themselves to "look into [this matter]",
aforequoted agreement, Gatmaitan executed in favor of no formal response was ever made by said bank to either
Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH Licaros or Gatmaitan. To date, Anglo-Asean has not acted on
ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; also Exh. "2"), Gatmaitan's monetary claims. DEcITS
which promissory note, appended as Annex "A" to the same
Memorandum of Agreement, states in full, thus Evidently, because of his inability to collect from Anglo-Asean,
Gatmaitan did not bother anymore to make good his promise
"NON-NEGOTIABLE PROMISSORY NOTE to pay Licaros the amount stated in his promissory note (Exh.
"A"; also Exh. 2"). Licaros, however, thought differently. He felt

that he had a right to collect on the basis of the promissory acts. Conventional subrogation is that which takes place by
note regardless of the outcome of Gatmaitan's recovery agreement of parties. 8
efforts. Thus, in July 1996, Licaros, thru counsel, addressed
successive demand letters to Gatmaitan (Exhs. "C" and "D"), The general tenor of the foregoing definitions of the terms
demanding payment of the latter's obligations under the "subrogation" and "assignment of credit" may make it seem
promissory note. Gatmaitan, however, did not accede to these that they are one and the same which they are not. A noted
demands. expert in civil law notes their distinctions thus:
Hence, on August 1, 1996, in the Regional Trial Court at "Under our Code, however, conventional subrogation is not
Makati, Licaros filed the complaint in this case. In his identical to assignment of credit. In the former, the debtors
complaint, docketed in the court below as Civil Case No. 96- consent is necessary; in the latter it is not required.
1211, Licaros prayed for a judgment ordering Gatmaitan to Subrogation extinguishes the obligation and gives rise to a
pay him the following: new one; assignment refers to the same right which passes
from one person to another. The nullity of an old obligation
'a) Principal Obligation in the amount of Three Million may be cured by subrogation, such that a new obligation will
Five Hundred Thousand Pesos (P3,500,000.00); be perfectly valid; but the nullity of an obligation is not
remedied by the assignment of the creditor's right to
b) Legal interest thereon at the rate of six (6%) percent another." 9
per annum from July 16, 1993 when the amount became due
until the obligation is fully paid; HcACTE For our purposes, the crucial distinction deals with the
necessity of the consent of the debtor in the original
c) Twenty percent (20%) of the amount due as transaction. In an assignment of credit, the consent of the
reasonable attorney's fees; debtor is not necessary in order that the assignment may fully
produce legal effects. 10 What the law requires in an
d) Costs of the suit.'" 4 assignment of credit is not the consent of the debtor but
merely notice to him as the assignment takes effect only from
After trial on the merits, the court a quo rendered judgment in the time he has knowledge thereof. 11 A creditor may,
favor of petitioner Licaros and found respondent Gatmaitan therefore, validly assign his credit and its accessories without
liable under the Memorandum of Agreement and Promissory the debtor's consent. 12 On the other hand, conventional
Note for P3,150,000.00 plus 12% interest per annum from July subrogation requires an agreement among the three parties
16, 1993 until the amount is fully paid. Respondent was concerned the original creditor, the debtor, and the new
likewise ordered to pay attorney's fees of P200,000.00. 5 creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties. Thus, Article
Respondent Gatmaitan appealed the trial court's decision to 1301 of the Civil Code explicitly states that "(C)onventional
the Court of Appeals. In a decision promulgated on February subrogation of a third person requires the consent of the
10, 2000, the appellate court reversed the decision of the trial original parties and of the third person." acHITE
court and held that respondent Gatmaitan did not at any point
become obligated to pay to petitioner Licaros the amount The trial court, in finding for the petitioner, ruled that the
stated in the promissory note. In a Resolution dated April 7, Memorandum of Agreement was in the nature of an
2000, the Court of Appeals denied petitioner's Motion for assignment of credit. As such, the court a quo held
Reconsideration of its February 10, 2000 Decision. respondent liable for the amount stated in the said agreement
even if the parties thereto failed to obtain the consent of
Hence this petition for review on certiorari where petitioner Anglo-Asean Bank. On the other hand, the appellate court
prays for the reversal of the February 10, 2000 Decision of the held that the agreement was one of conventional subrogation
Court of Appeals and the reinstatement of the November 11, which necessarily requires the agreement of all the parties
1997 decision of the Regional Trial Court. EIDTAa concerned. The Court of Appeals thus ruled that the
Memorandum of Agreement never came into effect due to the
The threshold issue for the determination of this Court is failure of the parties to get the consent of Anglo-Asean Bank
whether the Memorandum of Agreement between petitioner to the agreement and, as such, respondent never became
and respondent is one of assignment of credit or one of liable for the amount stipulated.
conventional subrogation. This matter is determinative of
whether or not respondent became liable to petitioner under We agree with the finding of the Court of Appeals that the
the promissory note considering that its efficacy is dependent Memorandum of Agreement dated July 29, 1988 was in the
on the Memorandum of Agreement, the note being merely an nature of a conventional subrogation which requires the
annex to the said memorandum. 6 consent of the debtor, Anglo-Asean Bank, for its validity. We
note with approval the following pronouncement of the Court
An assignment of credit has been defined as the process of of Appeals:
transferring the right of the assignor to the assignee who
would then have the right to proceed against the debtor. The "Immediately discernible from above is the common feature of
assignment may be done gratuitously or onerously, in which contracts involving conventional subrogation, namely, the
case, the assignment has an effect similar to that of a sale. 7 approval of the debtor to the subrogation of a third person in
place of the creditor. That Gatmaitan and Licaros had
On the other hand, subrogation has been defined as the intended to treat their agreement as one of conventional
transfer of all the rights of the creditor to a third person, who subrogation is plainly borne by a stipulation in their
substitutes him in all his rights. It may either be legal or Memorandum of Agreement, to wit:
conventional. Legal subrogation is that which takes place
without agreement but by operation of law because of certain

"WHEREAS, the parties herein have come to an agreement on (2) the consent of Anglo-Asean Bank was not necessary for
the nature, form and extent of their mutual prestations which the validity of the Memorandum of Agreement; (3) assuming
they now record herein with the express conformity of the that such consent was necessary, respondent failed to secure
third parties concerned" (italics supplied), the same as was incumbent upon him; and (4) respondent
himself admitted that the transaction was one of assignment
which third party is admittedly Anglo-Asean Bank. of credit. cEAaIS
Had the intention been merely to confer on appellant the Petitioner argues that the parties to the Memorandum of
status of a mere "assignee" of appellee's credit, there is Agreement could not have intended the same to be a
simply no sense for them to have stipulated in their conventional subrogation considering that no new obligation
agreement that the same is conditioned on the "express was created. According to petitioner, the obligation of Anglo-
conformity" thereto of Anglo-Asean Bank. That they did so Asean Bank to pay under Contract No. 00193 was not
only accentuates their intention to treat the agreement as one extinguished and in fact, it was the basic intention of the
of conventional subrogation. And it is basic in the parties to the Memorandum of Agreement to enforce the
interpretation of contracts that the intention of the parties same obligation of Anglo-Asean Bank under its contract with
must be the one pursued (Rule 130, Section 12, Rules of petitioner. Considering that the old obligation of Anglo-Asean
Court). IAEcCT Bank under Contract No. 00193 was never extinguished under
the Memorandum of Agreement, it is contended that the same
Given our finding that the Memorandum of Agreement (Exh. could not be considered as a conventional subrogation.
"B"; also Exh. "1"), is not one of "assignment of credit" but is
actually a "conventional subrogation", the next question that We are not persuaded.
comes to mind is whether such agreement was ever perfected
at all. Needless to state, the perfection or non-perfection It is true that conventional subrogation has the effect of
of the subject agreement is of utmost relevance at this point. extinguishing the old obligation and giving rise to a new one.
For, if the same Memorandum of Agreement was actually However, the extinguishment of the old obligation is the effect
perfected, then it cannot be denied that Gatmaitan still has a of the establishment of a contract for conventional
subsisting commitment to pay Licaros on the basis of his subrogation. It is not a requisite without which a contract for
promissory note. If not, Licaros' suit for collection must conventional subrogation may not be created. As such, it is
necessarily fail. not determinative of whether or not a contract of conventional
subrogation was constituted.
Here, it bears stressing that the subject Memorandum of
Agreement expressly requires the consent of Anglo-Asean to Moreover, it is of no moment that the subject of the
the subrogation. Upon whom the task of securing such Memorandum of Agreement was the collection of the
consent devolves, be it on Licaros or Gatmaitan, is of no obligation of Anglo-Asean Bank to petitioner Licaros under
significance. What counts most is the hard reality that there Contract No. 00193. Precisely, if conventional subrogation had
has been an abject failure to get Anglo-Asean's nod of taken place with the consent of Anglo-Asean Bank to effect a
approval over Gatmaitan's being subrogated in the place of change in the person of its creditor, there is necessarily
Licaros. Doubtless, the absence of such conformity on the part created a new obligation whereby Anglo-Asean Bank must
of Anglo-Asean, which is thereby made a party to the same now give payment to its new creditor, herein respondent.
Memorandum of Agreement, prevented the agreement from aEcHCD
becoming effective, much less from being a source of any
cause of action for the signatories thereto." 13 Petitioner next argues that the consent or conformity of Anglo-
Asean Bank is not necessary to the validity of the
Aside for the "whereas clause" cited by the appellate court in Memorandum of Agreement as the evidence on record
its decision, we likewise note that on the signature page, right allegedly shows that it was never the intention of the parties
under the place reserved for the signatures of petitioner and thereto to treat the same as one of conventional subrogation.
respondent, there is, typewritten, the words "WITH OUR He claims that the preambulatory clause requiring the express
CONFORME." Under this notation, the words "ANGLO-ASEAN conformity of third parties, which admittedly was Anglo-Asean
BANK AND TRUST" were written by hand. 14 To our mind, this Bank, is a mere surplusage which is not necessary to the
provision which contemplates the signed conformity of Anglo- validity of the agreement.
Asean Bank, taken together with the aforementioned
preambulatory clause leads to the conclusion that both As previously discussed, the intention of the parties to treat
parties intended that Anglo-Asean Bank should signify its the Memorandum of Agreement as embodying a conventional
agreement and conformity to the contractual arrangement subrogation is shown not only by the "whereas clause" but
between petitioner and respondent. The fact that Anglo-Asean also by the signature space captioned "WITH OUR
Bank did not give such consent rendered the agreement CONFORME" reserved for the signature of a Anglo-Asean
inoperative considering that, as previously discussed, the Bank. These provisions in the aforementioned Memorandum
consent of the debtor is needed in the subrogation of a third of Agreement may not simply be disregarded or dismissed as
person to the rights of a creditor. superfluous. cECTaD
In this petition, petitioner assails the ruling of the Court of It is a basic rule in the interpretation of contracts that "(t)he
Appeals that what was entered into by the parties was a various stipulations of a contract shall be interpreted
conventional subrogation of petitioner's rights as creditor of together, attributing to the doubtful ones that sense which
the Anglo-Asean Bank which necessarily requires the consent may result from all of them taken jointly." 15 Moreover, under
of the latter. In support, petitioner alleges that: (1) the our Rules of Court, it is mandated that "(i)n the construction of
Memorandum of Agreement did not create a new obligation an instrument where there are several provisions or
and, as such, the same cannot be a conventional subrogation; particulars, such a construction is, if possible, to be adopted

as will give effect to all." 16 Further, jurisprudence has laid SECOND DIVISION
down the rule that contracts should be so construed as to
harmonize and give effect to the different provisions thereof. [G.R. No. 182248. December 18, 2008.]
17
EQUITABLE PCI BANKING CORPORATION, 1 GEORGE L. GO,
In the case at bench, the Memorandum of Agreement PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G.
embodies certain provisions that are consistent with either a ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA,
conventional subrogation or assignment of credit. It has not GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C.
been shown that any clause or provision in the Memorandum PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
of Agreement is inconsistent or incompatible with a EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY
conventional subrogation. On the other hand, the two cited TANG, WALTER C. WESSMER, and ANTONIO N. COTOCO,
provisions requiring consent of the debtor to the petitioners, vs. RCBC CAPITAL CORPORATION, respondent.
memorandum is inconsistent with a contract of assignment of
credit. Thus, if we were to interpret the same as one of DECISION
assignment of credit, then the aforementioned stipulations
regarding the consent of Anglo-Asean Bank would be rendered VELASCO, JR., J p:
inutile and useless considering that, as previously discussed,
the consent of the debtor is not necessary in an assignment of The Case
credit.
This Petition for Review on Certiorari under Rule 45 seeks the
Petitioner next argues that assuming that the conformity of reversal of the January 8, 2008 2 and March 17, 2008 3 Orders
Anglo-Asean was necessary to the validity of the of the Regional Trial Court (RTC), Branch 148 in Makati City in
Memorandum of Agreement, respondent only had himself to SP Proc. Case No. 6046, entitled In the Matter of ICC
blame for the failure to secure such conformity as was, Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC Capital
allegedly, incumbent upon him under the memorandum. Corporation, (Claimant), and Equitable PCI Banking
acHETI Corporation, Inc. et al., (Respondents). The assailed January 8,
2008 Order confirmed the Partial Award dated September 27,
As to this argument regarding the party responsible for 2007 4 rendered by the International Chamber of Commerce-
securing the conformity of Anglo-Asean Bank, we fail to see International Court of Arbitration (ICC-ICA) in Case No.
how this question would have any relevance on the outcome 13290/MS/JB/JEM, entitled RCBC Capital Corporation
of this case. Having ruled that the consent of Anglo-Asean was (Philippines) v. Equitable PCI Bank, Inc. & Others (Philippines).
necessary for the validity of the Memorandum of Agreement, The March 17, 2008 Order denied petitioners' motion for
the determinative fact is that such consent was not secured reconsideration of the January 8, 2008 Order. cADEHI
by either petitioner or respondent which consequently
resulted in the invalidity of the said memorandum. The Facts
With respect to the argument of petitioner that respondent On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB)
himself allegedly admitted in open court that an assignment and the individual shareholders of Bankard, Inc., as sellers,
of credit was intended, it is enough to say that respondent and respondent RCBC Capital Corporation (RCBC), as buyer,
apparently used the word "assignment" in his testimony in the executed a Share Purchase Agreement 5 (SPA) for the
general sense. Respondent is not a lawyer and as such, he is purchase of petitioners' interests in Bankard, representing
not so well versed in law that he would be able to distinguish 226,460,000 shares, for the price of PhP1,786,769,400. To
between the concepts of conventional subrogation and of expedite the purchase, RCBC agreed to dispense with the
assignment of credit. Moreover, even assuming that there was conduct of a due diligence audit on the financial status of
an admission on his part, such admission is not conclusive on Bankard.
this court as the nature and interpretation of the
Memorandum of Agreement is a question of law which may Under the SPA, RCBC undertakes, on the date of contract
not be the subject of stipulations and admissions. 18 execution, to deposit, as downpayment, 20% of the purchase
price, or PhP357,353,880, in an escrow account. The escrowed
Considering the foregoing, it cannot then be said that the amount, the SPA stated, should be released to petitioners on
consent of the debtor Anglo-Asean Bank is not necessary to an agreed-upon release date and the balance of the purchase
the validity of the Memorandum of Agreement. As above price shall be delivered to the share buyers upon the
stated, the Memorandum of Agreement embodies a contract fulfillment of certain conditions agreed upon, in the form of a
for conventional subrogation and in such a case, the consent manager's check.
of the original parties and the third person is required. 19 The
absence of such conformity by Anglo-Asean Bank prevented The other relevant provisions of the SPA are:
the Memorandum of Agreement from becoming valid and
Section 5. Sellers' Representations and Warranties.
effective. Accordingly, the Court of Appeals did not err when it
ruled that the Memorandum of Agreement was never
The SELLERS jointly and severally represent and warrant to
perfected.
the BUYER that: ASHICc
Having arrived at the above conclusion, the Court finds no
xxx xxx xxx
need to discuss the other issues raised by petitioner.
The Financial Condition of Bankard
WHEREFORE, the instant petition is DENIED and the Decision
of the Court of Appeals dated February 10, 2000 and its
Resolution dated April 7, 2000 are hereby AFFIRMED.

g. The audited financial statements of Bankard for the SELLERS' representation and warrant in Section 5 (h) shall be
three (3) fiscal years ended December 31, 1997, 1998 and available only if the demand therefor is presented to the
1999, and the unaudited financial statements for the first Defaulting Party in writing together with schedules and to
quarter ended 31 March 2000, are fair and accurate, and substantiate such demand, within six (6) months from the
complete in all material respects, and have been prepared in Closing Date. 6 CIaHDc
accordance with generally accepted accounting principles
consistently followed throughout the period indicated and: On June 2, 2000, RCBC deposited the stipulated downpayment
amount in an escrow account after which it was given full
i) the balance sheet of Bankard as of 31 December management and operational control of Bankard. June 2, 2000
1999, as prepared and certified by SGV & Co. ("SGV"), and the is also considered by the parties as the Closing Date referred
unaudited balance sheet for the first quarter ended 31 March to in the SPA.
2000, present a fair and accurate statement as of those dates,
of Bankard's financial condition and of all its assets and Thereafter, the parties executed an Amendment to Share
liabilities, and is complete in all material respects; and Purchase Agreement (ASPA) dated September 19, 2000. 7 Its
paragraph 2 (e) provided that:
ii) the statements of Bankard's profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and certified by 2. Notwithstanding any provisions to the contrary in the
SGV, and the unaudited profit and loss accounts for the first Share Purchase Agreement and/or any agreement, instrument
quarter ended 31 March 2000, fairly and accurately present or document entered into or executed by the Parties in
the results of the operations of Bankard for the periods relation thereto (the "Related Agreements"), the Parties
indicated, and are complete in all material respects. cdphil hereby agree that:
h. Except as disclosed in the Disclosures, and except to xxx xxx xxx

the extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its e) Notwithstanding the provisions of Sec. 7 of the Share
unaudited financial statements as of 31 March 2000, Bankard, Purchase Agreement to the contrary, the remedy for a breach
as of such dates and up to 31 May 2000, had and shall have of the SELLERS' representation and warranty in Section 5 (h)
no liabilities, omissions or mistakes in its records which will of the Share Purchase Agreement shall be available if the
have material adverse effect on the net worth or financial demand therefor is presented to the SELLERS in writing
condition of Bankard to the extent of more than One Hundred together with schedules and data to substantiate such
Million Pesos (P100,000,000.00) in the aggregate. In the event demand, on or before 31 December 2000. (Emphasis added.)
such material adverse effect on the net worth or financial THcaDA
condition of Bankard exceeds One Hundred Million Pesos
(P100,000,000.00), the Purchase Price shall be reduced in Sometime in September 2000, RCBC had Bankard's accounts
accordance with the following formula: audited, creating for the purpose an audit team led by a
certain Rubio, the Vice-President for Finance of RCBC at the
Reduction in Purchase Price = X multiplied by 226,460,000 time. Rubio's conclusion was that the warranty, as contained
in Section 5 (h) of the SPA (simply Sec. 5 [h] hereinafter), was
where correct.
Amount by which negative On December 28, 2000, RCBC paid the balance of the contract
price. The corresponding deeds of sale for the shares in
adjustment exceeds P100 Million question were executed in January 2001.
X = __________________________ (1.925) Thereafter, in a letter of May 5, 2003, RCBC informed

petitioners of its having overpaid the purchase price of the
338,000,000 subject shares, claiming that there was an overstatement of
valuation of accounts amounting to PhP478 million, resulting
xxx xxx xxx in the overpayment of over PhP616 million. Thus, RCBC
claimed that petitioners violated their warranty, as sellers,
Section 7. Remedies for Breach of Warranties. embodied in Sec. 5 (g) of the SPA (Sec. 5 [g] hereinafter).
a. If any of the representations and warranties of any or Following unsuccessful attempts at settlement, RCBC, in
all of the SELLERS or the BUYER (the "Defaulting Party") accordance with Sec. 10 of the SPA, filed a Request for
contained in Sections 5 and 6 shall be found to be untrue Arbitration dated May 12, 2004 8 with the ICC-ICA. In the
when made and/or as of the Closing Date, the other party, i.e., request, RCBC charged Bankard with deviating from,
the BUYER if the Defaulting Party is any or all of the SELLERS contravening and not following generally accepted accounting
and the SELLERS if the Defaulting Party is the BUYER principles and practices in maintaining their books. Due to
(hereinafter referred to as the "Non-Defaulting Party") shall these improper accounting practices, RCBC alleged that both
have the right to require the Defaulting Party, at the latter's the audited and unaudited financial statements of Bankard
expense, to cure such breach, and/or seek damages, by prior to the stock purchase were far from fair and accurate
providing notice or presenting a claim to the Defaulting Party, and, hence, violated the representations and warranties of
reasonably specifying therein the particulars of the breach. petitioners in the SPA. Per RCBC, its overpayment amounted
The foregoing remedies shall be available to the Non- to PhP556 million. It thus prayed for the rescission of the SPA,
Defaulting Party only if the demand therefor is presented in restitution of the purchase price, payment of actual damages
writing to the Defaulting Party within three (3) years from the in the amount of PhP573,132,110, legal interest on the
Closing Date except that the remedy for a breach of the purchase price until actual restitution, moral damages, and

litigation and attorney's fees. As alternative to rescission and 15.3 This Award is delivered by a majority of the Tribunal
restitution, RCBC prayed for damages in the amount of at (Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable to
least PhP809,796,092 plus legal interest. DcCEHI agree with the majority's conclusion on the claim of estoppel
brought by the respondents. EcDATH
To the Request for Arbitration, petitioners filed an Answer
dated July 28, 2004, 9 denying RCBC's inculpatory averments On the matter of prescription, the tribunal held that RCBC's
and setting up the following affirmative allegations: the period claim is not time-barred, the claim properly falling under the
for filing of the asserted claim had already lapsed by force of contemplation of Sec. 5 (g) and not Sec. 5 (h). As such, the
Sec. 7 of the SPA; RCBC is not entitled to rescission having tribunal concluded, RCBC's claim was filed within the three
had ample opportunity and reasonable time to file a claim (3)-year period under Sec. 5 (g) and that the six (6)-month
against petitioners; RCBC is not entitled to its alternative period under Sec. 5 (h) did not apply.
prayer of damages, being guilty of laches and failing to set
out the details of the breach as required under Sec. 7. The tribunal also exonerated RCBC from laches, the latter
having sought relief within the three (3)-year period
Arbitration in the ICC-ICA proceeded after the formation of the prescribed in the SPA. On the matter of estoppel suggested in
arbitration tribunal consisting of retired Justice Santiago M. petitioners' answer, the tribunal stated in par. 10.27 of the
Kapunan, nominated by petitioners; Neil Kaplan, RCBC's Partial Award the following:
nominee; and Sir Ian Barker, appointed by the ICC-ICA.
10.27 Clearly, there has to be both an admission or
After drawn out proceedings with each party alleging representation by (in this case) the Claimant [RCBC], plus
deviation and non-compliance by the other with arbitration reliance upon it by (in this case) the Respondents [herein
rules, the tribunal, with Justice Kapunan dissenting, rendered petitioners]. The Tribunal cannot find as proved any
a Partial Award dated September 27, 2007, 10 the dispositive admission/representation that the Claimant was abandoning a
portion of which states: DHSCTI 5(g) claim, any reliance by the Respondents on an admission,
and any detriment to the Respondents such as would entitle
15 AWARD AND DIRECTIONS them to have the Claimant deprived of the benefit of clause
5(g). These aspects of the claim for estoppels are rejected. 11
15.1 The Tribunal makes the following declarations by way
of Partial Award: Notably, the tribunal considered the rescission of the SPA and
ASPA as impracticable and "totally out of the question". 12
(a) The Claimant's claim is not time-barred under the EHaCID
provisions of this SPA.
In his Dissenting Opinion 13 which he submitted to and which
(b) The Claimant is not estopped by its conduct or the was received on September 24, 2007 by the ICC-ICA, Justice
equitable doctrine of laches from pursuing its claim. Kapunan stated the observation that RCBC's claim is time-
barred, falling as such claim did under Sec. 5 (h), which
(c) As detailed in the Partial Award, the Claimant has prescribes a comparatively shorter prescriptive period, not 5
established the following breaches by the Respondents of (g) as held by the majority of the tribunal, to wit:
clause 5(g) of the SPA:
Claimant admits that the Claim is for recovery of P431 million
i) the assets, revenue and net worth of Bankard were on account of alleged "overvaluation of the net worth of
overstated by reason of its policy on and recognition of Late Bankard", allegedly for "improper accounting practices"
Payment Fees; resulting in "its book value per share as of 31 December 1999
[being] overstated." Claimant's witness, Dean Echanis asserts
ii) reported receivables were higher than their realizable that "the inadequate provisioning for Bankard's doubtful
values by reason of the 'bucketing' method, thus overstating accounts result[ed] in an overstatement of its December 31,
Bankard's assets; and EaISTD 1999 total assets and net worth of by [sic] least P418.2
million."
iii) the relevant Bankard statements were inadequate
and misleading in that their disclosures caused readers to be In addition, Claimant's demand letter addressed to the
misinformed about Bankard's accounting policies on revenue Respondents alleged that "we overpaid for the Shares to the
and receivables. extent of the impact of the said overstatement on the Book
Value per share".
(d) Subject to proof of loss the Claimant is entitled to
damages for the foregoing breaches. These circumstances establish beyond dispute that the Claim
is based on the alleged overstatement of the 1999 net worth
(e) The Claimant is not entitled to rescission of the SPA. of Bankard, which the parties relied on in setting the purchase
price of the shares. Moreover, it is clear that there was an
(f) All other issues, including any issue relating to costs,
overstatement because of "improper accounting practices"
will be dealt with in a further or final award.
which led Claimant to overpay for the shares. cdasia
15.2 A further Procedural Order will be necessary

Ultimately, the Claim is one for recovery of overpayment in
subsequent to the delivery of this Partial Award to deal with
the purchase price of the shares. . . .
the determination of quantum and in particular, whether there
should be an Expert appointed by the Tribunal under Article As to the issue of estoppel, Justice Kapunan stated:
20(4) of the ICC Rules to assist the Tribunal in this regard.

Moreover, Mr. Rubio's findings merely corroborated the notwithstanding it was rendered in plain disregard of the
disclosures made in the Information Memorandum that parties' contract and applicable Philippine law, under which
Claimant received from the Respondents prior to the the claim in arbitration was indubitably time-barred. aSCHcA
execution of the SPA. In this connection, I note that Bankard's
policy on provisioning and setting of allowances using the (b) The trial court acted contrary to law and judicial
Bucketed Method and income recognition from AR/Principal, authority in refusing to vacate and in confirming the arbitral
AR/Interest and AR/LPFs were disclosed in the Information award, notwithstanding that the arbitrators had plainly and
Memorandum. Thus, these alleged improper accounting admittedly failed to accord petitioners' due process by
practices were known to the Claimant even prior to the denying them a hearing on the basic factual matter upon
execution of the SPA. which their liability is predicated.
Thus, when Claimant paid the balance of the purchase price, it (c) The trial court committed grave error in confirming
did so with full knowledge of these accounting practices of the arbitrators' award, which held petitioners-sellers liable for
Bankard that it now assails. By paying the balance of the an alleged improper recording of accounts, allegedly affecting
purchase price without taking exception or objecting to the the value of the shares they sold, notwithstanding that the
accounting practices disclosed through Mr. Rubio's review and respondent-buyer knew before contracting that the accounts
the Information Memorandum, Claimant is deemed to have were kept in the manner complained of, and in fact ratified
accepted such practices as correctly reporting the 1999 net and adopted the questioned accounting practice and policies.
worth. . . . IDScTE 14
xxx xxx xxx The Court's Ruling
As last point, I note that my colleagues invoke a principle that The petition must be denied.
for estoppels to apply there must be positive indication that
the right to sue was waived. I am of the view that there is no On Procedural Misstep of Direct Appeal to This Court
such principle under Philippine law. What is applicable is the
holding in Knecht and in Coca-Cola that prior knowledge of an As earlier recited, the ICC-ICA's Partial Award dated
unfavorable fact is binding on the party who has such September 27, 2007 was confirmed by the RTC in its first
knowledge; "when the purchaser proceeds to make assailed order of January 8, 2008. Thereafter, the RTC, by
investigations by himself, and the vendor does nothing to order of March 17, 2008, denied petitioners' motion for
prevent such investigation from being as complete as the reconsideration. Therefrom, petitioners came directly to this
former might wish, the purchaser cannot later allege that the Court on a petition for review under Rule 45 of the Rules of
vendor made false representations to him" (Cf. Songco v. Court. DCAHcT
Sellner, 37 Phil. 254 citations omitted).
This is a procedural miscue for petitioners who erroneously
Applied to this case, the Claimant cannot seek relief on the bypassed the Court of Appeals (CA) in pursuit of its appeal.
basis that when it paid the purchase price in December 2000, While this procedural gaffe has not been raised by RCBC, still
it was unaware that the accounting practices that went into we would be remiss in not pointing out the proper mode of
the reporting of the 1999 net worth as amounting to appeal from a decision of the RTC confirming, vacating,
P1,387,275,847 were not in conformity with GAAP [generally setting aside, modifying, or correcting an arbitral award.
accepted accounting principles]. (Emphasis added.)
Rule 45 is not the remedy available to petitioners as the
On October 26, 2007, RCBC filed with the RTC a Motion to proper mode of appeal assailing the decision of the RTC
Confirm Partial Award. On the same day, petitioners countered confirming as arbitral award is an appeal before the CA
with a Motion to Vacate the Partial Award. On November 9, pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise
2007, petitioners again filed a Motion to Suspend and Inhibit known as the Alternative Dispute Resolution Act of 2004, or
Barker and Kaplan. ScAaHE completely, An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish
On January 8, 2008, the RTC issued the first assailed order the Office for Alternative Dispute Resolution, and for other
confirming the Partial Award and denying the adverted Purposes, promulgated on April 2, 2004 and became effective
separate motions to vacate and to suspend and inhibit. From on April 28, 2004 after its publication on April 13, 2004.
this order, petitioners sought reconsideration, but their motion
was denied by the RTC in the equally assailed second order of In Korea Technologies Co., Ltd. v. Lerma, we explained, inter
March 17, 2008. alia, that the RTC decision of an assailed arbitral award is
appealable to the CA and may further be appealed to this
From the assailed orders, petitioners came directly to this Court, thus: IEaHSD
Court through this petition for review.
Sec. 46 of RA 9285 provides for an appeal before the CA as
The Issues the remedy of an aggrieved party in cases where the RTC sets
aside, rejects, vacates, modifies, or corrects an arbitral award,
This petition seeks the review, reversal and setting aside of thus:
the orders Annexes A and B and, in lieu of them, it seeks
judgment vacating the arbitrators' liability award, Annex C, on SEC. 46. Appeal from Court Decision or Arbitral Awards. A
these grounds: decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may
(a) The trial court acted contrary to law and judicial be appealed to the Court of Appeals in accordance with the
authority in refusing to vacate the arbitral award, rules and procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court Finally, it should be stressed that while a court is precluded
confirming an arbitral award shall be required by the appellate from overturning an award for errors in determination of
court to post a counterbond executed in favor of the factual issues, nevertheless, if an examination of the record
prevailing party equal to the amount of the award in reveals no support whatever for the arbitrators'
accordance with the rules to be promulgated by the Supreme determinations, their award must be vacated. In the same
Court. manner, an award must be vacated if it was made in
"manifest disregard of the law." 17 (Emphasis supplied.)
Thereafter, the CA decision may further be appealed or cADEHI
reviewed before this Court through a petition for review under
Rule 45 of the Rules of Court. 15 Following Asset Privatization Trust, errors in law and fact
would not generally justify the reversal of an arbitral award. A
It is clear from the factual antecedents that RA 9285 applies party asking for the vacation of an arbitral award must show
to the instant case. This law was already effective at the time that any of the grounds for vacating, rescinding, or modifying
the arbitral proceedings were commenced by RCBC through a an award are present or that the arbitral award was made in
request for arbitration filed before the ICC-ICA on May 12, manifest disregard of the law. Otherwise, the Court is duty-
2004. Besides, the assailed confirmation order of the RTC was bound to uphold an arbitral award.
issued on March 17, 2008. Thus, petitioners clearly took the
wrong mode of appeal and the instant petition can be outright The instant petition dwells on the alleged manifest disregard
rejected and dismissed. HDIaET of the law by the ICC-ICA.
Even if we entertain the petition, the outcome will be the The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
same. Jaros 18 expounded on the phrase "manifest disregard of the
law" in the following wise:
The Court Will Not Overturn an Arbitral Award Unless it Was
Made in Manifest Disregard of the Law This court has emphasized that manifest disregard of the law
is a very narrow standard of review. Anaconda Co. v. District
In Asset Privatization Trust v. Court of Appeals, 16 the Court Lodge No. 27, 693 F.2d 35 (6th Cir. 1982). A mere error in
passed on similar issues as the ones tendered in the instant interpretation or application of the law is insufficient.
petition. In that case, the arbitration committee issued an Anaconda, 693 F.2d at 37-38. Rather, the decision must fly in
arbitral award which the trial court, upon due proceedings, the face of clearly established legal precedent. When faced
confirmed despite the opposition of the losing party. Motions with questions of law, an arbitration panel does not act in
for reconsideration by the losing party were denied. An appeal manifest disregard of the law unless (1) the applicable legal
interposed by the losing party to the CA was denied due principle is clearly defined and not subject to reasonable
course. On appeal to this Court, we established the debate; and (2) the arbitrators refused to heed that legal
parameters by which an arbitral award may be set aside, to principle. cDCEHa
wit:
Thus, to justify the vacation of an arbitral award on account of
As a rule, the award of an arbitrator cannot be set aside for "manifest disregard of the law", the arbiter's findings must
mere errors of judgment either as to the law or as to the facts. clearly and unequivocally violate an established legal
Courts are without power to amend or overrule merely precedent. Anything less would not suffice.
because of disagreement with matters of law or facts
determined by the arbitrators. They will not review the In the present case, petitioners, in a bid to establish that the
findings of law and fact contained in an award, and will not arbitral award was issued in manifest disregard of the law,
undertake to substitute their judgment for that of the allege that the Partial Award violated the principles of
arbitrators, since any other rule would make an award the prescription, due process, and estoppel. A review of
commencement, not the end, of litigation. Errors of law and petitioners' arguments would, however, show that their
fact, or an erroneous decision of matters submitted to the arguments are bereft of merit. Thus, the Partial Award dated
judgment of the arbitrators, are insufficient to invalidate an September 27, 2007 cannot be vacated.
award fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial review of a trial. RCBC's Claim Is Not Time-Barred
SDATEc
Petitioners argue that RCBC's claim under Sec. 5 (g) is based
Nonetheless, the arbitrators' awards is not absolute and on overvaluation of Bankard's revenues, assets, and net
without exceptions. The arbitrators cannot resolve issues worth, hence, for price reduction falling under Sec. 5 (h), in
beyond the scope of the submission agreement. The parties to which case it was belatedly filed, for RCBC presented the
such an agreement are bound by the arbitrators' award only claim to petitioners on May 5, 2003, when the period for
to the extent and in the manner prescribed by the contract presenting it under Sec. 5 (h) expired on December 31, 2000.
and only if the award is rendered in conformity thereto. Thus, As a counterpoint, RCBC asserts that its claim clearly comes
Sections 24 and 25 of the Arbitration Law provide grounds for under Sec. 5 (g) in relation to Sec. 7 which thus gave it three
vacating, rescinding or modifying an arbitration award. Where (3) years from the closing date of June 2, 2000, or until June 1,
the conditions described in Articles 2038, 2039 and 2040 of 2003, within which to make its claim. RCBC contends having
the Civil Code applicable to compromises and arbitration are acted within the required period, having presented its claim-
attendant, the arbitration award may also be annulled. demand on May 5, 2003. TcIAHS
xxx xxx xxx To make clear the issue at hand, we highlight the pertinent
portions of Secs. 5 (g), 5 (h), and 7 bearing on what
petitioners warranted relative to the financial condition of

Bankard and the remedies available to RCBC in case of breach Before we address the issue put forward by petitioners, there
of warranty: is a necessity to determine the nature and application of the
reliefs provided under Sec. 5 (g) and Sec. 5 (h) in conjunction
g. The audited financial statements of Bankard for the with Sec. 7, thus:
three (3) fiscal years ended December 31, 1997, 1998 and
1999, and the unaudited financial statements for the first (1) The relief under Sec. 5 (h) is specifically for price
quarter ended 31 March 2000, are fair and accurate, and reduction as said section explicitly states that the "Purchase
complete in all material respects, and have been prepared in Price shall be reduced in accordance with the following
accordance with generally accepted accounting principles formula . . . ." In addition, Sec. 7 gives the aggrieved party the
consistently followed throughout the period indicated and: right to ask damages based on the stipulation that the non-
defaulting party "shall have the right to require the Defaulting
i) the balance sheet of Bankard as of 31 December Party, at the latter's expense, to cure such breach and/or seek
1999, as prepared and certified by SGV & Co. ("SGV"), and the damages."
unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those dates, On the other hand, the remedy under Sec. 5 (g) in conjunction
of Bankard's financial condition and of all its assets and with Sec. 7 can include specific performance, damages, and
liabilities, and is complete in all material respects; and other reliefs excluding price reduction.
aDSIHc
(2) Sec. 5 (g) warranty covers the audited financial
ii) the statements of Bankard's profit and loss accounts statements (AFS) for the three (3) years ending December 31,
for the fiscal years 1996 to 1999, as prepared and certified by 1997 to 1999 and the unaudited financial statements (UFS)
SGV, and the unaudited profit and loss accounts for the first for the first quarter ending March 31, 2000. On the other
quarter ended 31 March 2000, fairly and accurately present hand, the Sec. 5 (h) warranty refers only to the AFS for the
the results of the operations of Bankard for the periods year ending December 31, 1999 and the UFS up to May 31,
indicated, and are complete in all material respects. 2000. It is undenied that Sec. 5 (h) refers to price reduction as
it covers "only the most up-to-date audited and unaudited
h. Except as disclosed in the Disclosures, and except to financial statements upon which the price must have been
the extent set forth or reserved in the audited financial based." 19 CASaEc
statements of Bankard as of 31 December 1999 and its
unaudited financial statements for the first quarter ended 31 (3) Under Sec. 5 (h), the responsibility of petitioners for
March 2000, Bankard, as of such dates and up to 31 May its warranty shall exclude the disclosures and reservations
2000, had and shall have no liabilities, omissions or mistakes made in AFS of Bankard as of December 31, 1999 and its UFS
in its records which will have a material adverse effect on the up to May 31, 2000. No such exclusions were made under
net worth or financial condition of Bankard to the extent of Sec. 5 (g) with respect to the warranty of petitioners in the
more than One Hundred Million Pesos (P100,000,000.00) in AFS and UFS of Bankard.
the aggregate. In the event such material adverse effect on
the net worth or financial condition of Bankard exceeds One (4) Sec. 5 (h) gives relief only if there is material adverse
Hundred Million Pesos (P100,000,000.00), the Purchase Price effect in the net worth in excess of PhP100 million and it
shall be reduced in accordance with the following formula: provides a formula for price reduction. 20 On the other hand,
IAcTaC Sec. 5 (g) can be the basis for remedies like specific
performance, damages, and other reliefs, except price
xxx xxx xxx reduction, even if the overvaluation is less or above PhP100
million and there is no formula for computation of damages.
Section 7. Remedies for Breach of Warranties.
(5) Under Sec. 7, the aggrieved party shall present its
If any of the representations and warranties of any or all of written demand to the defaulting party within three (3) years
the SELLERS or the BUYER (the "Defaulting Party") contained from closing date. Under Sec. 5 (h), the written demand shall
in Sections 5 and 6 shall be found to be untrue when made be presented within six (6) months from closing date. In
and/or as of the Closing Date, the other party, i.e., the BUYER accordance with par. 2 (c) of the ASPA, the deadline to file the
if the Defaulting is any of the SELLERS and the SELLERS if the demand under Sec. 5 (h) was extended to December 31,
Defaulting Party is the BUYER (hereinafter referred to as the 2000.
"Non-Defaulting Party") shall have the right to require the
Defaulting Party, at the latter's expense, to cure such breach, From the above determination, it becomes clear that the
and/or seek damages, by providing notice or presenting a aggrieved party is entitled to two (2) separate alternative
claim to the Defaulting Party, reasonably specifying therein remedies under Secs. 5 and 7 of the SPA, thus: CAHaST
the particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand 1. A claim for price reduction under Sec. 5(h) and/or
therefor is presented in writing to the Defaulting Party within damages based on the breach of warranty by Bankard on the
three (3) years from the Closing Date, except that the remedy absence of liabilities, omissions and mistakes on the financial
for a breach of the SELLERS' representation and warranty in statements as of 31 December 1999 and the UFS as of 31 May
Section 5 (h) shall be available only if the demand therefor is 2000, provided that the material adverse effect on the net
presented to the Defaulting Party in writing together with worth exceeds PhP100M and the written demand is presented
schedules and data to substantiate such demand, within six within six (6) months from closing date (extended to 31
(6) months from the Closing Date. (Emphasis supplied.) December 2000); and
SHAcID
2. An action to cure the breach like specific
performance and/or damages under Sec. 5(g) based on

Bankard's breach of warranty involving its AFS for the three RCBC should it be discovered, as of closing date, that there is
(3) fiscal years ending 31 December 1997, 1998, and 1999 overvaluation which will constitute breach of the warranty
and the UFS for the first quarter ending 31 March 2000 clause under either Sec. 5 (g) or (h), to wit:
provided that the written demand shall be presented within
three (3) years from closing date. (1) An overvaluation of Bankard's actual financial
condition as of closing date taints the veracity and accuracy
Has RCBC the option to choose between Sec. 5 (g) or Sec. 5 of the AFS for 1997, 1998, and 1999 and the UFS for the first
(h)? quarter of 2000 and is an actionable breach of petitioners'
warranties under Sec. 5 (g). acCDSH
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves of (2) An overvaluation of Bankard's financial condition as
any remedy mentioned above. They may choose one and of May 31, 2000, encompassing the warranted financial
dispense with the other. Of course, the relief for price condition as of December 31, 1999 through the AFS for 1999
reduction under Sec. 5 (h) will have to conform to the and as of March 31, 2000 through the UFS for the first quarter
prerequisites and time frame of six (6) months; otherwise, it is of 2000, is a breach of petitioners' representations and
waived. SCDaHc warranties under Sec. 5 (h).
Preliminarily, petitioners' basic posture that RCBC's claim is Thus, RCBC has two distinct alternative remedies in case of an
for the recovery of overpayment is specious. The records overvaluation of Bankard's financial condition. It may invoke
show that in its Request for Arbitration dated May 12, 2004, Sec. 5 (h) when the conditions of the threshold aggregate
RCBC prayed for the rescission of the SPA, restitution of the overvaluation and the claim made within the six-month time-
whole purchase price, and damages not for reduction of price bar are present. In the alternative, it may invoke Sec. 5 (g)
or for the return of any overpayment. Even in its May 5, 2000 when it finds that a claim for "curing the breach" and/or
letter, 21 RCBC did not ask for the recovery of any damages will be more advantageous to its interests provided
overpayment or reduction of price, merely stating in it that it is filed within three (3) years from closing date. Since it has
the accounts of Bankard, as reflected in its AFS for 1999, were two remedies, RCBC may opt to exercise either one. Of
overstated which, necessarily, resulted in an overpayment course, the exercise of either one will preclude the other.
situation. RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by Sec. 5 (g) of the Moreover, the language employed in Sec. 5 (g) and Sec. 5 (h)
SPA. is clear and bereft of any ambiguity. The SPA's stipulations
reveal that the non-use or waiver of Sec. 5 (h) does not
It is thus evident that RCBC did not avail itself of the option preclude RCBC from availing itself of the second relief under
under Sec. 5 (h), i.e., for price reduction or the return of any Sec. 5 (g). Article 1370 of the Civil Code is explicit that "if
overpayment arising from the overvaluation of Bankard's terms of a contract are clear and leave no doubt upon the
financial condition. Clearly, RCBC invoked Sec. 5 (g) to claim intention of the contracting parties the literal meaning of its
damages from petitioners which is one of the alternative stipulations shall control." Since the terms of a contract have
reliefs granted under Sec. 7 in addition to rescission and the force of law between the parties, 22 then the parties must
restitution of purchase price. respect and strictly conform to it. Lastly, it is a long held
cardinal rule that when the terms of an agreement are
Petitioners do not deny that RCBC formally filed its claim reduced to writing, it is deemed to contain all the terms
under Sec. 5 (g) which is anchored on the material agreed upon and no evidence of such terms can be admitted
overstatement or overvaluation of Bankard's revenues, other than the contents of the agreement itself. 23 Since the
assets, and net worth and, hence, the overstatement of the SPA is unambiguous, and petitioners failed to adduce
purchase price. They, however, assert that such claim for evidence to the contrary, then they are legally bound to
overpayment is actually a claim under Sec. 5 (h) of the SPA for comply with it. DETcAH
price reduction which it forfeited after December 31, 2000.
aDcETC Petitioners agreed ultimately to the stipulation that:
We cannot sustain petitioners' position. Each of the representations and warranties of the SELLERS is
deemed to be a separate representation and warranty, and
It cannot be disputed that an overstatement or overvaluation the BUYER has placed complete reliance thereon in agreeing
of Bankard's financial condition as of closing date translates to the Purchase Price and in entering into this Agreement. The
into a misrepresentation not only of the accuracy and representations and warranties of the SELLERS shall be
truthfulness of the financial statements under Sec. 5 (g), but correct as of the date of this Agreement and as of the Closing
also as to Bankard's actual net worth mentioned in Sec. 5 (h). Date with the same force and effect as though such
Overvaluation presupposes mistakes in the entries in the representations and warranties had been made as of the
financial statements and amounts to a breach of petitioners' Closing Date. 24 (Emphasis supplied.)
representations and warranties under Sec. 5. Consequently,
such error in the financial statements would impact on the The Court sustains the finding in the Partial Award that Sec. 5
figure representing the net worth of Bankard as of closing (g) of the SPA is a free standing warranty and not constricted
date. An overvaluation means that the financial condition of by Sec. 5 (h) of the said agreement.
Bankard as of closing date, i.e., June 2, 2000, is overstated, a
situation that will definitely result in a breach of EPCIB's Upon the foregoing premises and in the light of the
representations and warranties. undisputed facts on record, RCBC's claim for rescission of the
SPA and damages due to overvaluation of Bankard's accounts
A scrutiny of Sec. 5 (g) and Sec. 5 (h) in relation to Sec. 7 of was properly for a breach of the warranty under Sec. 5 (g) and
the SPA would indicate the following remedies available to was not time-barred. To repeat, RCBC presented its written

claim on May 5, 2003, or a little less than a month before consistently followed throughout the period audited, yet both
closing date, well within the three (3)-year prescriptive period warranties boil down to the same thing and stem from the
provided under Sec. 7 for the exercise of the right provided same accounts as summarized in the AFS. Since the net worth
under Sec. 5 (g). STaHIC is the balance of Bankard's assets less its liabilities, it
necessarily includes all the accounts under the AFS. In short,
Petitioners bemoan the fact that "the arbitrators' liability there are no accounts in the AFS that do not bear on the net
award (a) disregarded the 6-month contractual limitation for worth of Bankard. Moreover, as earlier elucidated, any
RCBC's 'overprice' claim, and [b] substituted in its place the 3- overvaluation of Bankard's net worth is necessarily a
year limitation under the contract for other claims," 25 misrepresentation of the veracity, accuracy, and
adopting in that regard the interpretation of the SPA made by completeness of the AFS and also a breach of the warranty
arbitral tribunal member, retired Justice Kapunan, in his under Sec. 5 (g). Thus, the subject of the warranty in Sec. 5
Dissenting Opinion, in which he asserted: (h) is also covered by the warranty in Sec. 5 (g), and Sec. 5 (h)
cannot exclude such breach from the ambit of Sec. 5 (g).
Ultimately, the Claim is one for recovery of overpayment in There is no need to rely on Sec. 12, Rule 130 of the Rules of
the purchase price of the shares. And it is in this context, that Court for both Sec. 5 (g) and Sec. 5 (h) as alternative
I respectfully submit that Section 5 (h) and not Section 5 (g), remedies are of equal footing and one need not categorize
applies to the present controversy. 26 one section as a general provision and the other a particular
provision. HECTaA
xxx xxx xxx
More importantly, a scrutiny of the four corners of the SPA
True, without Section 5(h), the Claim for price recovery would does not explicitly reveal any stipulation nor even impliedly
fall under Section 5(g). The recovery of the pecuniary loss of that the parties intended to limit the scope of the warranty in
the Claimant in the form of the excess price paid would be in Sec. 5 (g) or gave priority to Sec. 5 (h) over Sec. 5 (g).
the nature of a claim for actual damages by way of
compensation. In that situation, all the accounts in the 1999 The arbitral tribunal did not find any legal basis in the SPA
financial statements would be the subject of the warranty in that Sec. 5 (h) "somehow cuts down" the scope of Sec. 5 (g),
Section 5(g). SDIaCT thus:
However, since the parties explicitly included Section 5(h) in 9.10 In the opinion of the Tribunal, there is nothing in the
their SPA, which assures the Claimant that there were no wording used in the SPA to give priority to one warranty over
"omissions or mistakes in the records" that would misstate the the other. There is nothing in the wording used to indicate that
1999 net worth account, I am left with no other conclusion but the parties intended to limit the scope of the warranty in 5(g).
that the accuracy of the net worth was the subject of the If it be contended that, on a true construction of the two
warranty in Section 5(h), while the accuracy or correctness of warranties, 5(h) somehow cuts down the scope of 5(g), the
the other accounts that did not bear on, or affect Bankard's Tribunal can find no justification for such conclusion on the
net worth, were guaranteed by Section 5(g). wording used. Furthermore, the Tribunal is of the view that
very clear words would be needed to cut down the scope of
xxx xxx xxx the 5(g) warranty. 28
This manner of reconciling the two provisions is consistent The Court upholds the conclusion of the tribunal and rules
with the principle in Rule 130, Section 12 of the Rules of Court that the claim of RCBC under Sec. 5 (g) is not time-barred.
that "when a general and a particular provision are HTDCAS
inconsistent, the latter is paramount to the former. . . [so] a
particular intent will control a general one that is inconsistent Petitioners Were Not Denied Due Process
with it." This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated in Petitioners impute on RCBC the act of creating summaries of
the case of Commissioner of Customs vs. Court of Tax the accounts of Bankard which "in turn were used by its
Appeals, G.R. No. L-41861, dated March 23, 1987 . . . . experts to conclude that Bankard improperly recorded its
receivables and committed material deviations from GAAP
xxx xxx xxx requirements." 29 Later, petitioners would assert that "the
arbitrators' partial award admitted and used the Summaries
The Claim is for recovery of the excess price by way of actual as evidence, and held on the basis of the 'information'
damages. 27 . . . (Emphasis supplied.) AHDTIE contained in them that petitioners were in breach of their
warranty in GAAP compliance."
Justice Kapunan noted that without Sec. 5 (h), RCBC's claim
would fall under Sec. 5 (g), impliedly admitting that both To petitioners, the ICC-ICA's use of such summaries but
provisions could very well cover RCBC's claim, except that without presenting the source documents violates their right
Sec. 5 (h) excludes the situation contemplated in it from the to due process. Pressing the point, petitioners had moved, but
general terms of Sec. 5 (g). to no avail, for the exclusion of the said summaries.
Petitioners allege that they had reserved the right to cross-
Such view is incorrect. examine the witnesses of RCBC who testified on the
summaries, pending the resolution of their motion to exclude.
While it is true that Sec. 5 (h), as couched, is a warranty on But, according to them, they were effectively denied the right
the accuracy of the Bankard's net worth while Sec. 5 (g), as to cross-examine RCBC's witnesses when the ICC-ICA
also couched, is a warranty on the veracity, accuracy, and admitted the summaries of RCBC as evidence. SEHTAC
completeness of the AFS in all material respects as prepared
in accordance with generally accepted accounting principles Petitioners' position is bereft of merit.

Anent the use but non-presentation of the source documents provided summaries of the accounts of Bankard, which
as the jumping board for a claim of denial of due process, petitioners now question. aSTAHD
petitioners cite Compania Maritima v. Allied Free Worker's
Union. 30 It may be stated, however, that such case is not on Later, in a letter dated February 14, 2005, 41 petitioners
all fours with the instant case and, therefore, cannot be complained to the tribunal with regard to their lack of access
applied here considering that it does not involve an to RCBC's external auditor. Petitioners sought an audit by an
administrative body exercising quasi-judicial function but accounting firm of the records of Bankard with respect to the
rather the regular court. claims of RCBC. By virtue of such requests, petitioners also
sought a rescheduling of the provisional timetable, despite
In a catena of cases, we have ruled that "[t]he essence of due their earlier assurance to the tribunal that if they received the
process is the opportunity to be heard. What the law prohibits documents that they requested on February 9, 2005 on or
is not the absence of previous notice but the absolute before February 21, 2005, they would abide by the provisional
absence thereof and the lack of opportunity to be heard." 31 timetable.
We also explained in Lastimoso v. Asayo that "[d]ue process in Thereafter, the tribunal issued Procedural Order No. 2 dated
an administrative context does not require trial type February 18, 2005, 42 in which it allowed the discovery and
proceedings similar to those in courts of justice. Where an inspection of the documents requested by petitioners that
opportunity to be heard either through oral arguments or were also scheduled on February 18, 2005. The request for an
through pleadings is accorded, there is no denial of procedural audit of Bankard's accounts was denied without prejudice to
due process." 32 ScAHTI the conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional
Were petitioners afforded the opportunity to refute the timetable, extending the deadline for petitioners to file their
summaries and pieces of evidence submitted by RCBC which brief of evidence and documents to March 21, 2005. The date
became the bases of the experts' opinion? of the initial hearing, however, remained on April 11, 2005.
The answer is in the affirmative. On February 18, 2005, petitioners were furnished the
documents that they requested RCBC. 43 The parties also
We recall the events that culminated in the issuance of the agreed to meet again on February 23, 2005 to provide
challenged Partial Award, thus: petitioners with a "walk-through" of Bankard's Statistical
Analysis System and to provide petitioners with a soft copy of
On May 17, 2004, the ICC-ICA received the Request for all of Bankard's cardholders. 44 EacHCD
Arbitration dated May 12, 2004 from RCBC seeking rescission
of the SPA and restitution of all the amounts paid by RCBC to During the February 23, 2005 meeting, EPCIB's
petitioners, with actual and moral damages, interest, and counsels/representatives were accompanied to the Bankard's
costs of suit. Credit-MIS Group. There, Bankard's representative, Amor
Lazaro, described and explained to petitioners'
On August 8, 2004, petitioners filed an Answer to the Request representatives the steps involved in procuring and
for Arbitration dated July 28, 2004, setting up a counterclaim translating raw data on customer transactions. Lazaro
for USD300,000 for actual and exemplary damages. explained that Bankard captures cardholder information and
transactions through encoding or electronic data capture.
RCBC filed its Reply 33 dated August 31, 2004 to petitioners' Thereafter, such data are transmitted to its main credit card
Answer to the Request for Arbitration. TCaAHI administration system. Such raw data are then sent to
Bankard's Information Technology Group. Using a proprietary
On October 4, 2004, the parties entered into the Terms of software called SAS, the raw data is then converted into SAS
Reference. 34 At the same time, the chairperson of the files which may be viewed, handled, and converted into Excel
arbitral tribunal issued a provisional timetable 35 for the files for reporting purposes. During the walk-through,
arbitration. petitioners' representatives asked questions which were
answered in detail by Lazaro.
On October 25, 2004, as previously agreed upon in the
meeting on October 4, 2004, petitioners filed a Motion to At the same time, another Bankard representative, Felix L.
Dismiss 36 while RCBC filed a "Claimant's Position Paper (Re: Sincoegue, accompanied two auditors/representatives of
[Petitioners'] Assertion that RCBC CAPITAL CORPORATION's petitioners to examine the journal vouchers and supporting
Present Claim Is Time Barred)." 37 documents of Bankard consisting of several boxes. The
auditors randomly sifted through the boxes which they had
Then, the tribunal issued Procedural Order No. 1 dated
earlier requested to be inspected. DAaIHT
January 12, 2005, 38 denying the motion to dismiss and
setting the initial hearing of the case on April 11, 2005. In addition, petitioners were furnished with an electronic copy
of the details of all cardholders, including relevant data for
In a letter dated February 9, 2005, 39 petitioners requested
aging of receivables for the years 2000 to 2003, as well as
that the tribunal direct RCBC to produce certain documents. At
data containing details of written-off accounts from 1999 to
the same time, petitioners sought the postponement of the
March 2000 contained in compact discs. 45
hearing on April 11, 2005 to March 21, 2005, in light of their
own request. On March 4, 2005, petitioners sent a letter 46 to the tribunal
requesting for a postponement of the April 11, 2005 hearing
On February 11, 2005, petitioners received RCBC's brief of
of the case. Petitioners claim that they could not confirm the
evidence and supporting documentation in accordance with
summaries prepared by RCBC, considering that RCBC
the provisional timetable. 40 In the brief of evidence, RCBC
allegedly did not cooperate in providing data that would

facilitate their verification. Petitioners specifically mentioned vouchers and other supporting documents that RCBC used to
the following data: (1) list of names of cardholders whose arrive at the figures set out in the summaries and other
accounts are sources of data gathered or calculated in the relevant information necessary to enable them to reconstruct
summaries; (2) references to the basic cardholder documents and/or otherwise understand the figures or amounts in each
from which such data were collected; and (3) access to the summary; and (2) submit to petitioners the requested pieces
underlying cardholder documents at a time and under of information as soon as these are or have become available,
conditions mutually convenient to the parties. As regards the or in any case not later than five days.
compact discs of information provided to petitioners, it is
claimed that such information could not be accessed as the In response to such letter, RCBC addressed a letter dated
software necessary for the handling of the data could not be January 31, 2006 58 to the tribunal claiming that the pieces of
made immediately available to them. information that petitioners requested are already known to
petitioners considering that RCBC merely maintained the
In Procedural Order No. 3 dated March 11, 2005, 47 the initial systems that they inherited when it bought Bankard from
hearing was moved to June 13 to 16, 2005, considering that petitioners. RCBC added that the documents that EPCIB
petitioners failed to pay the advance on costs of the tribunal. originally transmitted to it when RCBC bought Bankard were
DHAcET all being made available to petitioners; thus, any missing
supporting documents from these files were never transmitted
On March 23, 2005, RCBC paid the balance of the advance on to them in the first place.
costs. 48
Later, petitioners sent to the tribunal a letter dated February
On April 22, 2005, petitioners sent the tribunal a letter, 49 10, 2006, 59 asking that it direct RCBC to provide petitioners
requesting for the postponement of the hearing scheduled on with the supporting documents that RCBC mentioned in its
June 13 to 16, 2005 on the ground that they could not submit letter dated January 31, 2006. Petitioners wrote that should
their witness' statements due to the volume of data that they RCBC fail to present such documents, RCBC's summaries
acquired from RCBC. should be excluded from the records. SIEHcA
In a letter dated April 25, 2005, 50 petitioners demanded from In a letter dated March 10, 2006, 60 petitioners requested
RCBC that they be allowed to examine the journal vouchers that they be given an additional period of at least 47 days
earlier made available to them during the February 23, 2005 within which to submit their evidence-in-chief with the
meeting. This demand was answered by RCBC in a letter corresponding request for the cancellation of the hearing on
dated April 26, 2005, 51 stating that such demand was being April 24, 2006. Petitioners submit that should such request be
denied by virtue of Procedural Order No. 2, in which it was denied, RCBC's summaries should be excluded from the
ruled that further requests for discovery would not be made records.
except with leave of the chairperson of the tribunal.
On April 6, 2006, petitioners filed their arbitration briefs and
In Procedural Order No. 4, 52 the tribunal granted petitioners' witness statements. By way of reply, on April 17, 2006, RCBC
request for the postponement of the hearing on June 13, 2005 submitted Volumes IV and V of its exhibits and Volume II of its
and rescheduled it to November 21, 2005 in light of the evidence-in-chief. 61
pending motions filed by EPCIB with the RTC in Makati City.
CHTcSE On April 18, 2006, petitioners requested the tribunal that they
be allowed to file rejoinder briefs, or otherwise exclude RCBC's
On July 29, 2005, the parties held a meeting wherein it was reply brief and witness statements. 62 In this request,
agreed that petitioners would be provided with hard and soft petitioners also requested that the hearing set for April 24,
copies of the inventory of the journal vouchers earlier 2006 be moved. These requests were denied.
presented to its representatives, while making the journal
vouchers available to petitioners for two weeks for Consequently, on April 24 to 27, 2006, the arbitral tribunal
examination and photocopying. 53 conducted hearings on the case. 63
On September 2, 2005, petitioners applied for the On December 4, 2006, petitioners submitted rejoinder
postponement of the November 21, 2005 hearing due to the affidavits, raising new issues for the first time, to which RCBC
following: (1) petitioners had earlier filed a motion dated submitted Volume III of its evidence-in-chief by way of a reply.
August 11, 2005 with the RTC, in which the issue of whether HITAEC
the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which On January 16, 2007, both parties simultaneously submitted
was still pending; and (2) the gathering and processing of the their memoranda. On January 26, 2007, both parties
data and documents made available by RCBC would require simultaneously filed their reply to the other's memorandum.
26 weeks. 54 Such application was denied by the tribunal in 64
Procedural Order No. 5 dated September 16, 2005. 55
Thus, on September 27, 2007, the Partial Award was rendered
On October 21, 2005, the tribunal issued Procedural Order No. by the Tribunal.
6, 56 postponing the November 21, 2005 hearing by virtue of
an order issued by the RTC in Makati City directing the tribunal Later, petitioners moved to vacate the said award before the
to reset the hearing for April 21 and 24, 2006. TaCIDS RTC. Such motion was denied by the trial court in the first
assailed order dated January 8, 2008. Petitioners then moved
Thereafter, in a letter dated January 18, 2006, 57 petitioners for a reconsideration of such order, but their motion was also
wrote the tribunal requesting that RCBC be directed to: (1) denied in the second assailed order dated March 17, 2008.
provide petitioners with information identifying the journal

The foregoing events unequivocally demonstrate ample In resolving administrative cases, conduct of full-blown trial is
opportunity for petitioners to verify and examine RCBC's not indispensable to dispense justice to the parties. The
summaries, accounting records, and reports. The pleadings requirement of notice and hearing does not connote full
reveal that RCBC granted petitioners' requests for production adversarial proceedings. Submission of position papers may
of documents and accounting records. More so, they had more be sufficient for as long as the parties thereto are given the
than three (3) years to prepare for their defense after RCBC's opportunity to be heard. In administrative proceedings, the
submission of its brief of evidence. Finally, it must be essence of due process is simply an opportunity to be heard,
emphasized that petitioners had the opportunity to appeal the or an opportunity to explain one's side or opportunity to seek
Partial Award to the RTC, which they in fact did. Later, a reconsideration of the action or ruling complained of. This
petitioners even moved for the reconsideration of the denial constitutional mandate is deemed satisfied if a person is
of their appeal. Having been able to appeal and move for a granted an opportunity to seek reconsideration of an action or
reconsideration of the assailed rulings, petitioners cannot a ruling. It does not require trial-type proceedings similar to
claim a denial of due process. 65 THIECD those in the courts of justice. Where opportunity to be heard
either through oral arguments or through pleadings is
Petitioners' right to due process was not breached. accorded, there is no denial of procedural due process. 67
(Emphasis supplied.) ITCcAD
As regards petitioners' claim that its right to due process was
violated when they were allegedly denied the right to cross- Citing Vertudes v. Buenaflor, petitioners also cry denial of due
examine RCBC's witnesses, their claim is also bereft of merit. process when they were allegedly denied the right to cross-
examine the witnesses presented by RCBC. It is true that in
Sec. 15 of RA 876 or the Arbitration Law provides that: Vertudes, we stated: "The right of a party to confront and
cross-examine opposing witnesses in a judicial litigation, be it
Section 15. Hearing by arbitrators. Arbitrators may, criminal or civil in nature, or in proceedings before
at the commencement of the hearing, ask both parties for administrative tribunals with quasi-judicial powers, is a
brief statements of the issues in controversy and/or an agreed fundamental right which is part of due process." 68
statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional It is, however, equally true that:
evidence as the arbitrators shall require or deem necessary to
an understanding and determination of the dispute. The [T]he right is a personal one which may be waived expressly
arbitrators shall be the sole judge of the relevancy and or impliedly by conduct amounting to a renunciation of the
materiality of the evidence offered or produced, and shall not right of cross-examination. Thus, where a party has had the
be bound to conform to the Rules of Court pertaining to opportunity to cross-examine a witness but failed to avail
evidence. Arbitrators shall receive as exhibits in evidence any himself of it, he necessarily forfeits the right to cross-examine
document which the parties may wish to submit and the and the testimony given on direct examination of the witness
exhibits shall be properly identified at the time of submission. will be received or allowed to remain in the record. 69
All exhibits shall remain in the custody of the Clerk of Court (Emphasis supplied.) cTECIA
during the course of the arbitration and shall be returned to
the parties at the time the award is made. The arbitrators may We also held in one case:
make an ocular inspection of any matter or premises which
are in dispute, but such inspection shall be made only in the However, the right has always been understood as requiring
presence of all parties to the arbitration, unless any party who not necessarily an actual cross-examination but merely an
shall have received notice thereof fails to appear, in which opportunity to exercise the right to cross-examine if desired.
event such inspection shall be made in the absence of such What is proscribed by statutory norm and jurisprudential
party. (Emphasis supplied.) SDTIaE precept is the absence of the opportunity to cross-examine.
The right is a personal one and may be waived expressly or
The well-settled rule is that administrative agencies exercising impliedly. There is an implied waiver when the party was
quasi-judicial powers shall not be fettered by the rigid given the opportunity to confront and cross-examine an
technicalities of procedure, albeit they are, at all times opposing witness but failed to take advantage of it for reasons
required, to adhere to the basic concepts of fair play. The attributable to himself alone. If by his actuations, the accused
Court wrote in CMP Federal Security Agency, Inc. v. NLRC: lost his opportunity to cross-examine wholly or in part the
witnesses against him, his right to cross-examine is impliedly
While administrative tribunals exercising quasi-judicial waived. 70 (Emphasis supplied.)
powers, like the NLRC and Labor Arbiters, are free from the
rigidity of certain procedural requirements, they are And later in Velez v. De Vera, the Court En Banc expounded on
nonetheless bound by law and practice to observe the the above rulings, adding that in administrative proceedings,
fundamental and essential requirements of due process. The cross-examination is not indispensable, thus:
standard of due process that must be met in administrative
tribunals allows a certain degree of latitude as long as fairness Due process of law in administrative cases is not identical with
is not ignored. Hence, it is not legally objectionable, for being "judicial process" for a trial in court is not always essential to
violative of due process, for the Labor Arbiter to resolve a due process. While a day in court is a matter of right in
case based solely on the position papers, affidavits or judicial proceedings, it is otherwise in administrative
documentary evidence submitted by the parties. The proceedings since they rest upon different principles. The due
affidavits of witnesses in such case may take the place of their process clause guarantees no particular form of procedure
direct testimony. 66 and its requirements are not technical. Thus, in certain
proceedings of administrative character, the right to a notice
Of the same tenor is our holding in Quiambao v. Court of or hearing [is] not essential to due process of law. The
Appeals: constitutional requirement of due process is met by a fair

hearing before a regularly established administrative agency We explained the principle of estoppel in Philippine Savings
or tribunal. It is not essential that hearings be had before the Bank v. Chowking Food Corporation:
making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the . . . The equitable doctrine of estoppel was explained by this
making of such determination may be raised and considered. Court in Caltex (Philippines), Inc. v. Court of Appeals:
One adequate hearing is all that due process requires. What is
required for "hearing" may differ as the functions of the Under the doctrine of estoppel, an admission or
administrative bodies differ. HSEIAT representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person
The right to cross-examine is not an indispensable aspect of relying thereon. A party may not go back on his own acts and
due process. 71 . . . (Emphasis supplied.) representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by
Clearly, the right to cross-examine a witness, although a his own declaration, act, or omission, intentionally and
fundamental right of a party, may be waived. Petitioners deliberately led another to believe a particular thing true, to
themselves admit having had the opportunity to cross- act upon such belief, he cannot, in any litigation arising out of
examine RCBC's witnesses during the hearings before the such declaration, act, or omission, be permitted to falsify it.
tribunal, but declined to do so by reserving such right at a AaCcST
later time. Having had the opportunity to cross-examine
RCBC's witnesses, petitioners were not denied their right to The principle received further elaboration in Maneclang v.
due process. Baun:
RCBC is Not Estopped from Questioning the Financial In estoppel by pais, as related to the party sought to be
Condition of Bankard estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct amounting to false
On estoppel, petitioners contend that RCBC already knew the representation or concealment of material facts or at least
recording of the Bankard accounts before it paid the balance calculated to convey the impression that the facts are
of the purchase price and could no longer challenge the otherwise than, and inconsistent with, those which the party
financial statements of Bankard. RCBC, they claim, had full subsequently attempts to assert; (b) intent, or at least
control of the operations of Bankard since June 2, 2000 and expectation that this conduct shall be acted upon, or at least
RCBC's audit team reviewed the accounts in September 2000. influenced by the other party; and (c) knowledge, actual or
Thus, RCBC is now precluded from denying the fairness and constructive of the actual facts.
accuracy of said accounts since it did not seek price reduction
under Sec. 5 (h). Lastly, they asseverate that RCBC continued Estoppel may vary somewhat in definition, but all authorities
with Bankard's accounting policies and practices and found agree that a party invoking the doctrine must have been
them to conform to the generally accepted accounting misled to one's prejudice. That is the final and, in reality, most
principles, contrary to RCBC's allegations. aCTcDS important of the elements of equitable estoppel. It is this
element that is lacking here. 73 (Emphasis supplied.)
It also bears stating that in his dissent, retired Justice
Kapunan, an arbitral tribunal member, argued that Bankard's The elements of estoppel pertaining to the party estopped
accounting practices were disclosed in the information are:
memorandum provided to RCBC; hence, RCBC was supposed
to know such accounting practices and to have accepted their (1) conduct which amounts to a false representation or
propriety even before the execution of the SPA. He then concealment of material facts, or, at least, which calculated to
argued that when it paid the purchase price on December 29, convey the impression that the facts are otherwise than, and
2000, RCBC could no longer claim that the accounting inconsistent with, those which the party subsequently
practices that went into the reporting of the 1999 AFS of attempts to assert; (2) intention, or at least expectation, that
Bankard were not in accord with generally accepted such conduct shall be acted upon by the other party; and (3)
accounting principles. He pointed out that RCBC was bound by knowledge, actual or constructive, of the actual facts. 74
the audit conducted by a certain Rubio prior to the full DHETIS
payment of the purchase price of Bankard. Anchored on these
statements by Justice Kapunan, petitioners conclude that In the case at bar, the first element of estoppel in relation to
RCBC is estopped from claiming that the former violated their the party sought to be estopped is not present. Petitioners
warranties under the SPA. claim that RCBC misrepresented itself when RCBC made it
appear that they considered petitioners to have sufficiently
Petitioners' contention is not meritorious. complied with its warranties under Sec. 5 (g) and 5 (h), in
relation to Sec. 7 of the SPA. Petitioners' position is that "RCBC
Art. 1431 of the Civil Code, on the subject of estoppel, was aware of the manner in which the Bankard accounts were
provides: "Through estoppel an admission or representation is recorded, well before it consummated the SPA by taking
rendered conclusive upon the person making it, and cannot be delivery of the shares and paying the outstanding 80%
denied or disproved as against the person relying thereon." balance of the contract price." 75
IAETSC
Petitioners, therefore, theorize that in this case, the first
The doctrine of estoppel is based upon the grounds of public element of estoppel in relation to the party sought to be
policy, fair dealing, good faith, and justice; and its purpose is estopped is that RCBC made a false representation that it
to forbid one to speak against one's own acts, considered Bankard's accounts to be in order and, thus, RCBC
representations, or commitments to the injury of one to whom abandoned any claim under Sec. 5 (g) and 5 (h) by its
they were directed and who reasonably relied on them. 72 inaction. ECaAHS

Such contention is incorrect. The Arbitral Tribunal explained in detail why estoppel is not
present in the case at bar, thus: EDHCSI
It must be emphasized that it was only after a second audit
that RCBC presented its claim to petitioners for violation of 10.18 The audit exercise conducted by Mr. Legaspi and Mr.
Sec. 5 (g), within the three (3)-year period prescribed. In other Rubio was clearly not one comprehensive enough to have
words, RCBC, prior to such second audit, did not have full and discovered the problems later unearthed by Dr. Laya and
thorough knowledge of the correctness of Bankard's accounts, Dean Ledesma. . . .
in relation to Sec. 5 (g). RCBC, therefore, could not have
misrepresented itself considering that it was still in the 10.19 Although the powers of the TC [Transition Committee]
process of verifying the warranties covered under Sec. 5 (g). may have been widely expressed in the view of Mr. Rogelio
Considering that there must be a concurrence of the elements Chua, then in charge of Bankard . . . the TC conducted
of estoppel for it to arise, on this ground alone such claim is meetings only to get updated on the status and progress of
already negated. As will be shown, however, all the other Bankard's operations. Commercially, one would expect that an
elements of estoppel are likewise absent in the case at bar. unpaid vendor expecting to receive 80% of a large purchase
price would not be receptive to a purchaser making vast
As to the second element, in order to establish estoppel, RCBC policy changes in the operation of the business until the
must have intended that petitioners would act upon its purchaser has paid up its money. It is more likely that, until
actions. This element is also missing. RCBC by its actions did the settlement date, there was a practice of maintaining the
not mislead petitioners into believing that it waived any claim status quo at Bankard.
for violation of a warranty. The periods under Sec. 5 (g) and 5
(h) were still available to RCBC. CDHSac 10.20 But neither the Claimant nor the TC did anything, in
the Tribunal's view, which would have given the Respondents
The element that petitioners relied on the acts and conduct of the impression that they were being relieved over the next
RCBC is absent. The Court finds that there was no reliance on three years of susceptibility to a claim under clause 5(g).
the part of petitioners on the acts of RCBC that would lead Maybe the TC could have been more proactive in
them to believe that the RCBC will forego the filing of a claim commissioning further or more in-depth audits but it was not.
under Sec. 5 (g). The allegation that RCBC knew that the It did not have to be. It is commercially unlikely that it have
Bankard accounts did not comply with generally accepted been done so, with the necessary degree of attention to
accounting principles before payment and, hence, it cannot detail, within the relatively short time between the
question the financial statements of Bankard is meritless. appointment of the TC and the ultimate settlement date of the
Precisely, the SPA explicitly provides that claims for violation purchase a period of some three months. An interim
of the warranties under Sec. 5 (g) can still be filed within three arrangement was obviously sensible to enable the Claimant
(3) years from the closing date. Petitioners' contention that and its staff to become familiar with the practices and
RCBC had full control of Bankard operations after payment of procedures of Bankard. ADEHTS
the price and that an audit undertaken by the Rubio team did
not find anything wrong with the accounts could not have 10.21 The core consideration weighing with the Tribunal in
plausibly misled petitioners into believing that RCBC will waive assessing these claims for estoppel is that the SPA allowed
its right to file a claim under Sec. 5 (g). After all, the period to two types of claim; one within six months under 5(h) and one
file a claim under Sec. 5 (g) is three (3) years under Sec. 7, within three years under 5(g). The Tribunal has already held
much longer than the six (6)-month period under Sec. 5 (h). the present claim is not barred by clause 5(h). It must
Petitioners are fully aware that the warranties under Sec. 5 (g) therefore have been within the reasonable contemplation of
(1997 up to March 2000) are of a wider scope than that of the parties that a 5(g) claim could surface within the three-
Sec. 5 (h) (AFS of 1999 and UFS up to May 31, 2000), year period and that it could be somewhat differently
necessitating a longer audit period than the six (6)-month assessed than the claim under 5(h). The Tribunal cannot find
period under Sec. 5 (h). SATDEI estoppel by conduct either from the formation of the TC or
from the limited auditing exercise done by Mr. Rubio and Mr.
The third element of estoppel in relation to the party sought Legaspi. The onus proving estoppel is on the Respondents and
to be estopped is also absent considering that, as stated, it has not been discharged.
RCBC was still in the process of verifying the correctness of
Bankard's accounts prior to presenting its claim of 10.22 If the parties had wished the avenues of relief for
overvaluation to petitioners. RCBC, therefore, had no sufficient misrepresentation afforded to the Claimant to have been
knowledge of the correctness of Bankard's accounts. restricted to a claim under Clause 5(h), then they could have
said so. The 'special audit' may have provided an answer to
On another issue, RCBC could not have immediately changed any claim based on clause 5(h) but it cannot do so in respect
the Bankard accounting practices until it had conducted a of a claim based on Clause 5(g). Clause 5(g) imposed a
more extensive and thorough audit of Bankard's voluminous positive obligation on the Respondents from which they
records and transactions to uncover any irregularities. That cannot be excused, simply by reason of either the formation
would be the only logical explanation why Bankard's alleged and conduct of the TC or of the limited audit. CSTDEH
irregular practices were maintained for more than two (2)
years from closing date. The fact that RCBC continued with 10.23 The three-year limitation period obviously
the audit of Bankard's AFS and records after the termination contemplated that it could take some time to ascertain
of the Rubio audit can only send the clear message to whether there had been a breach of the GAAP standards, etc.
petitioners that RCBC is still entertaining the possibility of Such was the case. A six-month limitation period under Clause
filing a claim under Sec. 5 (g). It cannot then be said that 5(h), in contrast, presaged a somewhat less stringent enquiry
petitioners' reliance on RCBC's acts after full payment of the of the kind carried out by Mr. Rubio and Mr. Legaspi.
price could have misled them into believing that no more
claim will be presented by RCBC.

10.24 Clause 2(3) of the Amendment to the SPA Respondent proved. The grounds of delay and laches are not
strengthens the conclusion that the parties were concerned substantiated. IHCSET
only with a 5(h) claim during the TC's reign. The focus of the
'audit' however intense it was conducted by Mr. Rubio In summary, the tribunal properly ruled that petitioners failed
and Mr. Legaspi, was on establishing possible liability under to prove that the formation of the Transition Committee and
that section and thus as a possible reduction in the price to be the conduct of the audit by Rubio and Legaspi were
paid on settlement. admissions or representations by RCBC that it would not
pursue a claim under Sec. 5 (g) and that petitioners relied on
10.25 The fact that the purchase price was paid over in full such representation to their detriment. We agree with the
without any deduction in terms of clause 5(h) is not a bar to findings of the tribunal that estoppel is not present in the
the Claimant bringing a claim under 5(g) within the three-year situation at bar.
period. The fact that payment was made can be, as the
Tribunal has held, a barrier to a claim for rescission and Additionally, petitioners claim that in Knecht v. Court of
restitution ad inegrum. A claim for estoppel needs a finding of Appeals 76 and Coca-Cola Bottlers Philippines, Inc. v. Court of
representation by words of conduct or a shared presumption Appeals (Coca-Cola), 77 this Court ruled that the absence of
that a right would not be relied upon. The party relying on the element of reliance by a party on the representation of
estoppel has to show reliance to its detriment or that, another does not negate the principle of estoppel. Those
otherwise, it would be unconscionable to resile from the cases are, however, not on all fours with and cannot be
provision. HIDCTA applied to this case.
10.26 Article 1431 of the Civil Code states: In Knecht, the buyer had the opportunity of knowing the
conditions of the land he was buying early on in the
"Through estoppel an admission or representation is transaction, but proceeded with the sale anyway. According to
rendered conclusive upon the person making it, and cannot be the Court, the buyer was estopped from claiming that the
denied or disproved as against the person relying thereon." vendor made a false representation as to the condition of the
land. This is not true in the instant case. RCBC did not conduct
10.27 Clearly, there has to both an admission or a due diligence audit in relation to Sec. 5 (g) prior to the sale
representation by (in this case) the Claimant, plus reliance due to petitioners' express representations and warranties.
upon it by (in this case) the Respondents. The Tribunal cannot The examination conducted by RCBC, through Rubio, after the
find as proved any admission/representation that the Claimant execution of the SPA on June 2, 2000, was confined to finding
was abandoning a 5(g) claim, any reliance by Respondents on any breach under Sec. 5 (h) for a possible reduction of the
an admission, and any detriment to the Respondents such as purchase price prior to the payment of its balance on
would entitle them to have the Claimant deprived of the December 31, 2000. Further, the parties clearly agreed under
benefit of clause 5(g). These aspects of the claim of estoppel Sec. 7 of the SPA to a three (3)-year period from closing date
are rejected. within which to present a claim for damages for violation of
the warranties under the SPA. Hence, Knecht is not a
xxx xxx xxx precedent to the case at bar. EACTSH
10.42 The Tribunal is not the appropriate forum for deciding So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware
whether there have been any regulatory or ethical infractions of the nature and situation of the land relative to its intended
by Bankard and/or the Claimant in setting the 'buy-back' use prior to the signing of the contract. Its subsequent
price. It has no bearing on whether the Claimant must be assertion that the land was not suited for the purpose it was
considered as having waived its right to claim against the leased was, therefore, cast aside for being unmeritorious.
Respondents. HCSEIT Such circumstance does not obtain in the instant case. There
was no prior due diligence audit conducted by RCBC, it having
10.43 In the Tribunal's view, neither any infraction by relied, as earlier stated, on the warranties of petitioners with
Bankard in failing to advise the Central Bank of the experts' regard to the financial condition of Bankard under Sec. 5 (g).
findings, nor a failure to put a tag on the accounts nor to have As such, Sec. 5 (g) guaranteed RCBC that it could file a claim
said something to the shareholders in the buy-back exercise for damages for any mistakes in the AFS and UFS of Bankard.
operates as a "technical knock-out" of Claimant's claim. Clearly, Coca-Cola also cannot be applied to the instant case.
10.44 The Tribunal notes that the conciliation process It becomes evident from all of the foregoing findings that the
mandated by the SPA took most of 2003 and this may explain ICC-ICA is not guilty of any manifest disregard of the law on
a part of the delay in commencing arbitral proceedings. estoppel. As shown above, the findings of the ICC-ICA in the
Partial Award are well-supported in law and grounded on facts.
10.45 Whatever the status of Mr. Rubio's and Mr. Legaspi's The Partial Award must be upheld.
enquiries in late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr. Echanis We close this disposition with the observation that a member
and, on the basis of those reports, make a timeous claim of the three-person arbitration panel was selected by
under clause 5(g) of the SPA. petitioners, while another was respondent's choice. The
respective interests of the parties, therefore, are very much
10.46 In the Tribunal's view, therefore, there is no merit in safeguarded in the arbitration proceedings. Any suggestion,
Respondents' various submissions that the Claimant is therefore, on the partiality of the arbitration tribunal has to be
debarred from prosecuting its claims on the grounds of dismissed. DCcSHE
estoppel. There is just no proof of the necessary
representation to the Respondent, nor any detriment to the

WHEREFORE, the instant petition is hereby DENIED. The settling any obligations of our client, KERAJ MARKETING
assailed January 8, 2008 and March 17, 2008 Orders of the COMPANY (sic), against your company.
RTC, Branch 148 in Makati City are hereby AFFIRMED.
This certification is issued at the request of the client for
Costs against petitioners. SO ORDERED. whatever legal purpose it may serve them best. (emphasis
and underscoring supplied) ECTIHa
THIRD DIVISION
On October 2, 2000, respondent and Keraj entered into a
[G.R. No. 191561. March 7, 2011.] Distributorship Agreement.
BANK OF COMMERCE, petitioner, vs. GOODMAN FIELDER Aragon subsequently issued a similar letter (dated October
INTERNATIONAL PHILIPPINES, INC., respondent. 18, 2000) 4 in favor of Bacolod RK Distributors and Co.,
(Bacolod RK), an entity also allegedly owned by Amarnani,
DECISION attesting to the arrangement by Keraj for a credit line in the
amount of P2,000,000.00, to be utilized for the settlement of
CARPIO MORALES, J p: Keraj's accounts with respondent.
Goodman Fielder International Philippines, Inc. (respondent), a Both letters of Aragon contain a "check write" on the left side
corporation duly registered and existing under the laws of the indicating the amount applied for as credit line. Keraj and
Republic of the Philippines, is engaged in marketing of fats Bacolod RK did not pursue their application for a credit line,
and oil shortening. 1 EaICAD however, despite follow-up advice from petitioner.
Keraj Marketing Company (Keraj), represented by its A year later, respondent informed petitioner, by letter of
purported owner Sumil K. Amarnani (Amarnani), sought a October 24, 2001, 5 its intent to claim against the bank
distributorship agreement from respondent. As a pre-requisite guaranty issued to settle Keraj and Bacolod RK's unpaid
to respondent's consent, a credit line/bank guaranty in the accounts. By another letter dated November 20, 2001, 6
amount of P500,000.00 was required from Keraj. Amarnani respondent advised petitioner its intent to collect the amount
thus applied for a credit line/bank guaranty with the Bacolod of P1,817,691.30 representing Keraj and Bacolod RK's unpaid
branch of Bank of Commerce (petitioner). obligations. CHTcSE
Pending submission of the required documents for processing Negotiations for the settlement of Keraj and Bacolod RK's
and approval of the credit line, Amarnani, by letter of August obligations having failed, respondent filed a complaint for
21, 2000, 2 requested the issuance of a conditional collection of sum of money against Keraj, Amarnani, Bacolod
certification from petitioner's branch manager Eli Aragon RK, and petitioner and its manager Aragon before the
(Aragon) in this wise: Regional Trial Court (RTC) of Pasig.
In defense, petitioner and Aragon claimed that the letters

merely certified that Keraj and Bacolod RK applied for the
Earlier I mentioned that one of my big suppliers is Goodman issuance of a bank guaranty, but no actual bank guaranty was
Fielder International where I get my baking supplies. approved, both companies having failed to present the
required documents for processing the application.
They are requiring from me a certification issued by my bank
that I am arranging for a credit line with my bank to be used if Bacolod RK, on the other hand, denied any involvement in the
I cannot pay them. Please tell me the requirements for the transaction between Keraj and respondent.
credit line so I can apply. All I need is a conditional
certification that I am arranging for a credit line from our Only petitioner presented evidence.
bank. I will prepare the necessary documents you mentioned
to me in your letter. cHAIES By Decision of July 20, 2007, Branch 268 of the Pasig RTC
absolved Bacolod RK from liability, but faulted Keraj,
I can offer you a property here in Bacolod as collateral for said Amarnani, Aragon and petitioner, disposing as follows:
credit line application.
WHEREFORE, foregoing premises considered, judgment is
Please advi[s]e. (emphasis, italics and underscoring supplied) hereby rendered in favor of the plaintiff [respondent herein]
and against defendants SUNIL AMARNANI, KERAJ MARKETING
Replying to Amarnani's request, Aragon sent respondent a CO., ELI ARAGON and BANK OF COMMERCE, ordering the
letter of August 23, 2000 3 reading: latter, jointly and severally, to pay the former the following
sums: cEISAD
Gentlemen:
1. Php1,700,250.66 as actual damages plus interest at
At the request of our client, KERAJ MARKETING COMPANY with the legal rate from the date of extrajudicial demand and
postal address at Door No. 2 Goldenfields Commercial satisfaction of judgment;
Complex, Singcang, Bacolod City, we are pleased to inform
you that said Corporation has arranged for a credit line in the 2. The sum equivalent to 25% of the total amount due
amount of FIVE HUNDRED THOUSAND PESOS ONLY as and by way of attorney's fees, and;
(P500,000.00), subject to the compliance by said client of the
policies, terms and conditions imposed by the bank on said 3. The cost of suits.
credit line. The said credit line will be used exclusively for

SO ORDERED. 7 (capitalization in the original) The resolution of the case hinges on what Aragon's statement
in the letters sent to respondent that ". . . we are pleased to
In holding petitioner jointly and severally liable with Amarnani, inform you that said Corporation has arranged for a credit
Keraj and Aragon, the trial court held: line" conveys. caDTSE
From the evidence adduced by the plaintiff [Goodman], Section 13, Rule 130, Rules of Court on interpretation of an
defendant bank is estopped from denying its liability relative instrument provides:
to the subject bank guarantees. Defendant Bank of Commerce
failed to sufficiently prove the foregoing defenses. Plaintiff SEC. 13. Interpretation according to circumstances. For the
relied on the apparent authority of its branch manager in proper construction of an instrument, the circumstances
issuing the subject documents. Defendant Bank is bound by under which it was made, including the situation of the
the acts of its branch manager. The Supreme Court ruled: subject thereof and of the parties to it, may be shown so that
"What transpires in the corporate board room is entirely an the judge may be placed in the position of those whose
internal matter. Hence, petitioner may not impute negligence language he is to interpret. (underscoring supplied)
on the part of respondent's representative in failing to find out
the scope of authority of petitioner's Branch Manager. Indeed, A consideration of the circumstances under which Aragon's
the public has the right to rely on the trustworthiness of bank letter-certifications were issued is thus in order.
managers and their acts. Obviously, confidence in the banking
system, which necessarily includes reliance on bank Amarnani's letter-request of August 21, 2000 for a conditional
managers, is vital in the economic life of our society." (BPI certification from Aragon was granted two days later when
Family Savings Bank, Inc. versus First Metro Investment Aragon issued the letter-certification addressed to respondent.
Corporation, G.R. No. 132390, May 21, 2004). 8 (italics in the Within that period, it could not have been possible for
original; emphasis supplied) petitioner to even process the application, given that
Amarnani had not even complied with the requirements as he,
The Court of Appeals, by the assailed Decision of June 17, himself, indicated in his letter-request to Aragon to "please tell
2009, 9 opined that Aragon's letters clearly showed approval [him] the requirements for the credit line so [he] c[ould]
by petitioner of the application for a credit line: SAaTHc apply." DCIAST
The word "guaranty" is not strictly required to appear in the The Distributorship Agreement between respondent and Keraj
said document to be able to say that it is as such. If the words was forged on October 2, 2000 or 39 days after the issuance
of the contract appear to be contrary to the evident intention of the letter-certification, long enough for respondent to verify
of the parties, the latter shall prevail over the former. In the if indeed a bank guaranty was, to its impression, granted.
case at bench, it was clearly shown that the intention of the
document was to guarantee the obligations that would be By respondent's finance manager Leonora Armi Salvador's
incurred by [herein petitioner's] clients, defendants Keraj and testimony, upon receipt of the two letter-certifications, 11 she
Becolod (sic) RK. Such intention was expressed in the last concluded that they were bank guarantees considering their
phrase of the first paragraph and its limitations were similarity with other bank guarantees in favor of respondent
specifically limited to Php500,000.00 and 2,000,000.00 by other distributors; and she made inquiries with petitioner
respectively. There is nothing more left to doubt the intention only after Keraj defaulted in the payment of its obligation to
of the parties included in the said bank guaranty. 10 respondent. 12
(underscoring supplied)
In light of the foregoing circumstances, petitioner could not
The appellate court accordingly affirmed the trial court's have conveyed that it was issuing a bank guaranty in favor of
decision, with modification by deleting the award of attorney's Amarnani.
fees.
Respondent's reliance on Aragon's use of a "check writer," a
Petitioner's motion for reconsideration having been denied by machine used to input a numerical or written value impression
Resolution of March 8, 2010, it filed the present petition for in the "payment amount field" of a check that is very difficult
review, faulting the appellate court as follows: DcAEIS to alter, on the left side of each letter-certification, was
misplaced, what prevails being the wordings of the letter-
I. certifications. 13 CAaSHI
THE COURT OF APPEALS ERRONEOUSLY INTERPRETED THE WHEREFORE, the challenged Court of Appeals Decision of June
NOTICE/CERTIFICATION ISSUED BY DEFENDANT ARAGON AS A 17, 2009 is REVERSED and SET ASIDE. The complaint of
BANK GUARANTEE AND NOT MERELY AS A LETTER- respondent, Goodman Fielder International Philippines, Inc. is,
CERTIFICATION OF A PENDING CREDIT LINE APPLICATION; with respect to petitioner, Bank of Commerce, DISMISSED. SO
ORDERED.
II.
FIRST DIVISION
THE DOCTRINE OF APPARENT AUTHORITY DOES NOT APPLY IN
THIS CASE; [G.R. No. 168387. August 25, 2010.]
III. SALUN-AT MARQUEZ and NESTOR DELA CRUZ, petitioners, vs.

ELOISA ESPEJO, ELENITA ESPEJO, EMERITA ESPEJO, OPHIRRO
DEFENDANT BANCOMMERCE IS NOT ESTOPPED FROM ESPEJO, OTHNIEL ESPEJO, ORLANDO ESPEJO, OSMUNDO
DENYING LIABILITY ON THE PURPORTED BANK GUARANTEES. ESPEJO, ODELEJO ESPEJO and NEMI FERNANDEZ, respondents.
(underscoring supplied)

DECISION SO ORDERED. 5
DEL CASTILLO, J p: Factual Antecedents
When the parties admit the contents of written documents but Respondents Espejos were the original registered owners of
put in issue whether these documents adequately and two parcels of agricultural land, with an area of two hectares
correctly express the true intention of the parties, the each. One is located at Barangay Lantap, Bagabag, Nueva
deciding body is authorized to look beyond these instruments Vizcaya (the Lantap property) while the other is located in
and into the contemporaneous and subsequent actions of the Barangay Murong, Bagabag, Nueva Vizcaya (the Murong
parties in order to determine such intent. Cdpr property). There is no dispute among the parties that the
Lantap property is tenanted by respondent Nemi Fernandez
Well-settled is the rule that in case of doubt, it is the intention (Nemi) 6 who is the husband 7 of respondent Elenita Espejo
of the contracting parties that prevails, for the intention is the (Elenita), while the Murong property is tenanted by petitioners
soul of a contract, not its wording which is prone to mistakes, Salun-at Marquez (Marquez) and Nestor Dela Cruz (Dela Cruz).
inadequacies, or ambiguities. To hold otherwise would give 8
life, validity, and precedence to mere typographical errors and
defeat the very purpose of agreements. The respondents mortgaged both parcels of land to Rural
Bank of Bayombong, Inc. (RBBI) to secure certain loans. Upon
This Petition for Review on Certiorari 1 assails the October 7, their failure to pay the loans, the mortgaged properties were
2003 Decision, 2 as well as the May 11, 2005 Resolution 3 of foreclosed and sold to RBBI. RBBI eventually consolidated title
the Court of Appeals (CA) in CA G.R. SP No. 69981. The to the properties and transfer certificates of title (TCTs) were
dispositive portion of the appellate court's Decision reads: issued in the name of RBBI. TCT No. T-62096 dated January
14, 1985 was issued for the Murong property. It contained the
WHEREFORE, finding reversible error committed by the following description:
Department of Agrarian Reform Adjudication Board, the
instant petition for review is GRANTED. The assailed Decision, Beginning at a point marked I on plan H-176292, S. 44034, W.
dated 17 January 2001, rendered by the Department of 1656.31 m. more or less from B.L.L.M. No. 1, Bagabag
Agrarian Reform Adjudication Board is hereby ANNULLED and Townsite, K-27, TEacSA
SET ASIDE. The Decision of the Department of Agrarian
Reform Adjudication Board of Bayombong[,] Nueva Vizcaya, thence N. 28 deg. 20 'E., 200.00 m. to point 2;
dated 17 March 1998, is REINSTATED. Costs against
respondents. thence S. 61 deg. 40 'E., 100.00 m. to point 3;
SO ORDERED. 4 thence S. 28 deg. 20 'W., 200.00 m. to point 4;
The reinstated Decision of the Department of Agrarian Reform thence N. 61 deg. 40 'W., 100.00 m. to point 1; point of
Adjudication Board (DARAB) of Bayombong, Nueva Vizcaya, in beginning;
turn, contained the following dispositive portion: CHATEa
Containing an area of 2.000 hectares. Bounded on the
Accordingly, judgment is rendered: northeast, by Road; on the southeast, and southwest by public
land; and on the northwest by Public Land, properties claimed
1. Finding [respondents] to be the owner by re-purchase by Hilario Gaudia and Santos Navarrete. Bearings true.
from RBBI [of] the Murong property covered by TCT No. Declination 0131 'E. Points referred to are marked on plan H-
[T-]62096 (formerly TCT No. 43258); 176292. Surveyed under authority of sections 12-22 Act No.
2874 and in accordance with existing regulations of the
2. Ordering the cancellation of TCT with CLOA Nos. 395 Bureau of Lands by H.O. Bauman Public Land Surveyor, [in]
and 396 in the name[s] of Salun-at Marquez and Nestor de la December 1912-March 1913. Note: All corners are Conc.
Cruz respectively, as they are disqualified to become tenants Mons. 15x15x60 cm. This is Lot No. 79-A=Lot No. 159 of
of the Lantap property; Bagabag Townsite, K-27. 9
3. Directing RBBI to sell through VOS the Lantap Subsequently, TCT No. T-62836 dated June 4, 1985 was issued
property to its rightful beneficiary, herein tenant-farmer Nemi for the Lantap property and contained the following
Fernandez under reasonable terms and conditions; description:
4. Ordering RBBI to return the amount paid to it by Beginning at a point marked "1" on plan H-105520, N. 80 deg.
Nestor and Satun-at; and ordering the latter to pay 20 cavans 32 'W., 1150.21 m. from BLLM No. 122, Irrigation project,
of palay per hectare at 46 kilos per cavan unto [respondents]
plus such accrued and unpaid rentals for the past years as thence N. 61 deg. 40'E., 200.00 m. to point 2; HCSEcI
may be duly accounted for with the assistance of the
Municipal Agrarian Reform Officer of Bagabag, Nueva Vizcaya thence N. 28 deg. 20'E., 100.00 m. to point 3;
who is also hereby instructed to assist the parties execute
their leasehold contracts and; thence S. 61 deg. 40'E., 200.00 m. to point 4;
5. The order to supervise harvest dated March 11, 1998 thence S. 28 deg. 20'W., 100.00 m. to point 1; point of
shall be observed until otherwise modified or dissolved by the beginning;
appellate body. TcCDIS

containing an area of 2.0000 hectares. Bounded on the CLOAs stated that their subjects were parcels of agricultural
northeast, southeast, and southwest by Public land; and on land situated in Barangay Murong. 19 The CLOAs were
the northwest by Road and public land. Bearings true. registered in the Registry of Deeds of Nueva Vizcaya on
Declination 0 deg. 31'E., points referred to are marked on plan September 5, 1991.
H-105520. Surveyed under authority of Section 12-22, Act No.
2874 and in accordance with existing regulations of the On February 10, 1997 (more than 10 years after the Deed of
Bureau of Lands, by H.O. Bauman Public Land Surveyor, [in] Sale in favor of the respondents and almost seven years after
Dec. 1912-Mar. 1913 and approved on January 6, 1932. Note: the execution of VLTs in favor of the petitioners), respondents
This is Lot No. 119-A Lot No. 225 of Bagabag Townsite K-27. filed a Complaint 20 before the Regional Agrarian Reform
All corners are B.I. Conc. Mons. 15x60 cm. 10 Adjudicator (RARAD) of Bayombong, Nueva Vizcaya for the
cancellation of petitioners' CLOAs, the deposit of leasehold
Both TCTs describe their respective subjects as located in rentals by petitioners in favor of respondents, and the
"Bagabag Townsite, K-27," without any reference to either execution of a deed of voluntary land transfer by RBBI in favor
Barangay Lantap or Barangay Murong. of respondent Nemi. The complaint was based on
respondents' theory that the Murong property, occupied by
On February 26, 1985, respondents Espejos bought back one the petitioners, was owned by the respondents by virtue of
of their lots from RBBI. The Deed of Sale 11 described the the 1985 buy-back, as documented in the Deed of Sale. They
property sold as follows: based their claim on the fact that their Deed of Sale refers to
TCT No. 62096, which pertains to the Murong property.
. . . do hereby SELL, TRANSFER, and CONVEY, absolutely and aSCHcA
unconditionally . . . that certain parcel of land, situated in the
Municipality of Bagabag, Province of Nueva Vizcaya, and more Petitioners filed their Answer 21 and insisted that they bought
particularly bounded and described as follows, to wit: the Murong property as farmer-beneficiaries thereof. They
aAHISE maintained that they have always displayed good faith, paid
lease rentals to RBBI when it became the owner of the Murong
Beginning at a point marked "1" on plan . . . Containing an property, bought the same from RBBI upon the honest belief
area of 2.000 hectares. Bounded on the NE., by Road; on the that they were buying the Murong property, and occupied and
SE., and SW by Public Land; and on the NW., by Public Land, exercised acts of ownership over the Murong property.
properties claimed by Hilario Gaudia and Santos Navarrete. Petitioners also argued that what respondents Espejos
Bearing true. Declination 013 'B. Points referred to are marked repurchased from RBBI in 1985 was actually the Lantap
on plan H-176292. property, as evidenced by their continued occupation and
possession of the Lantap property through respondent Nemi.
of which the Rural Bank of Bayombong (NV), Inc., is the
registered owner in fee simple in accordance with the Land RBBI answered 22 that it was the Lantap property which was
Registration Act, its title thereto being evidenced by Transfer the subject of the buy-back transaction with respondents
Certificate of Title No. T-62096 issued by the Registry of Deeds Espejos. It denied committing a grave mistake in the
of Nueva Vizcaya. transaction and maintained its good faith in the disposition of
its acquired assets in conformity with the rural banking rules
As may be seen from the foregoing, the Deed of Sale did not and regulations.
mention the barangay where the property was located but
mentioned the title of the property (TCT No. T-62096), which OIC-RARAD Decision 23
title corresponds to the Murong property. There is no
evidence, however, that respondents took possession of the The OIC-RARAD gave precedence to the TCT numbers
Murong property, or demanded lease rentals from the appearing on the Deed of Sale and the VLTs. Since TCT No. T-
petitioners (who continued to be the tenants of the Murong 62096 appeared on respondents' Deed of Sale and the said
property), or otherwise exercised acts of ownership over the title refers to the Murong property, the OIC-RARAD concluded
Murong property. On the other hand, respondent Nemi that the subject of sale was indeed the Murong property. On
(husband of respondent Elenita and brother-in-law of the other the other hand, since the petitioners' VLTs referred to TCT No.
respondents), continued working on the other property the T-62836, which corresponds to the Lantap property, the OIC-
Lantap property without any evidence that he ever paid RARAD ruled that petitioners' CLOAs necessarily refer to the
rentals to RBBI or to any landowner. The Deed of Sale was Lantap property. As for the particular description contained in
annotated on TCT No. T-62096 almost a decade later, on July the VLTs that the subject thereof is the Murong property, the
1, 1994. 12 DAaEIc OIC-RARAD ruled that it was a mere typographical error.
HSCATc
Meanwhile, on June 20, 1990, RBBI, pursuant to Sections 20
13 and 21 14 of Republic Act (RA) No. 6657, 15 executed Further, since the VLTs covered the Lantap property and
separate Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners are not the actual tillers thereof, the OIC-RARAD
petitioners Marquez and Dela Cruz, the tenants of the Murong declared that they were disqualified to become tenants of the
property. Both VLTs described the subject thereof as an Lantap property and ordered the cancellation of their CLOAs.
agricultural land located in Barangay Murong and covered by It then ordered RBBI to execute a leasehold contract with the
TCT No. T-62836 (which, however, is the title corresponding to real tenant of the Lantap property, Nemi.
the Lantap property). 16
The OIC-RARAD recognized that petitioners' only right as the
After the petitioners completed the payment of the purchase actual tillers of the Murong property is to remain as the
price of P90,000.00 to RBBI, the DAR issued the corresponding tenants thereof after the execution of leasehold contracts with
Certificates of Land Ownership Award (CLOAs) to petitioners and payment of rentals in arrears to respondents.
Marquez 17 and Dela Cruz 18 on September 5, 1991. Both

DARAB Decision 24 in their respective deeds of conveyance should control in
determining the subjects thereof. Since respondents' Deed of
Upon appeal filed by petitioners, the DARAB reversed the OIC- Sale expressed that its subject is the property with TCT No. T-
RARAD Decision. It ruled that in assailing the validity of the 62096, then what was sold to them was the Murong property.
CLOAs issued to petitioners as bona fide tenant-farmers, the On the other hand, petitioners' VLTs and CLOAs say that they
burden of proof rests on the respondents. There being no cover the property with TCT No. T-62836; thus it should be
evidence that the DAR field personnel were remiss in the understood that they were awarded the Lantap property.
performance of their official duties when they issued the Respondents added that since petitioners are not the actual
corresponding CLOAs in favor of petitioners, the presumption tillers of the Lantap property, their CLOAs should be cancelled
of regular performance of duty prevails. This conclusion is due to their lack of qualification.
made more imperative by the respondents' admission that
petitioners are the actual tillers of the Murong property, hence The CA agreed with the respondents. Using the Best Evidence
qualified beneficiaries thereof. Rule embodied in Rule 130, Section 3, the CA held that the
Deed of Sale is the best evidence as to its contents,
As for respondents' allegation that they bought back the particularly the description of the land which was the object of
Murong property from RBBI, the DARAB ruled that they failed the sale. Since the Deed of Sale expressed that its subject is
to support their allegation with substantial evidence. It gave the land covered by TCT No. T-62096 the Murong property
more credence to RBBI's claim that respondents repurchased then that is the property that the respondents repurchased.
the Lantap property, not the Murong property. Respondents, SEHTIc
as owners of the Lantap property, were ordered to enter into
an agricultural leasehold contract with their brother-in-law The CA further ruled that as for petitioners' VLTs, the same
Nemi, who is the actual tenant of the Lantap property. refer to the property with TCT No. T-62836; thus, the subject
DHEcCT of their CLOAs is the Lantap property. The additional
description in the VLTs that the subject thereof is located in
The DARAB ended its January 17, 2001 Decision in this wise: Barangay Murong was considered to be a mere typographical
error. The CA ruled that the technical description contained in
We find no basis or justification to question the authenticity the TCT is more accurate in identifying the subject property
and validity of the CLOAs issued to appellants as they are by since the same particularly describes the properties' metes
operation of law qualified beneficiaries over the landholdings; and bounds.
there is nothing to quiet as these titles were awarded in
conformity with the CARP program implementation; and Both the RBBI 26 and petitioners 27 filed their respective
finally, the Board declares that all controverted claims to or motions for reconsideration, which were separately denied. 28
against the subject landholding must be completely and
finally laid to rest. On June 22, 2004, RBBI filed a separate Petition for Review on
Certiorari, docketed as G.R. No. 163320, with this Court. 29
WHEREFORE, premises considered and finding reversible RBBI raised the issue that the CA failed to appreciate that
errors[,] the assailed decision is ANNULLED and a new respondents did not come to court with clean hands because
judgment is hereby rendered, declaring: they misled RBBI to believe at the time of the sale that the
two lots were not tenanted. RBBI also asked that they be
1. Appellants Salun-at Marquez and Nestor Dela Cruz as declared free from any liability to the parties as it did not
the bona fide tenant-tillers over the Murong property and enrich itself at anyone's expense. RBBI's petition was
therefore they are the qualified beneficiaries thereof; dismissed on July 26, 2004 for lack of merit. The said
Resolution reads:
2. Declaring Transfer Certificate of Title (TCT) Nos. 395
and 396 issued in the name of [farmer-beneficiaries] Salun-at Considering the allegations, issues[,] and arguments adduced
Marquez and Nestor Dela Cruz respectively, covered formerly in the petition for review on certiorari, the Court Resolves to
by TCT No. 62096 (TCT No. 43258) of the Murong property as DENY the petition for lack of sufficient showing that the Court
valid and legal; of Appeals had committed any reversible error in the
questioned judgment to warrant the exercise by this Court of
its discretionary appellate jurisdiction in this case. 30 ISDCHA
3. Ordering the co-[respondents] to firm-up an Their Motion for Reconsideration was likewise denied with
agricultural leasehold contract with bona fide tenant-tiller finality. 31 Entry of judgment was made in that case on
Nemi Fernandez over the Lantap property, [the latter] being December 15, 2004. 32
the subject matter of the 'buy back' arrangement entered into
between [respondents] and Rural Bank of Bayombong, On July 27, 2005, 33 petitioners filed the instant petition.
Incorporated, and other incidental matters are deemed
resolved. TCEaDI Issues
SO ORDERED. 25 Rephrased and consolidated, the parties present the following

issues for the Court's determination:
Ruling of the Court of Appeals
I
In appealing to the CA, the respondents insisted that the
DARAB erred in ruling that they repurchased the Lantap What is the effect of the final judgment dismissing RBBI's
property, while the petitioners were awarded the Murong Petition for Review on Certiorari, which assailed the same CA
property. They were adamant that the title numbers indicated Decision

II bank as to the identity of the properties and for
misrepresenting that the two lots were not tenanted. Thus,
Whether the CA erred in utilizing the Best Evidence Rule to RBBI argued that respondents did not come to court with
determine the subject of the contracts clean hands. HcaDIA
III These arguments were ineffectual in convincing the Court to

review the appellate court's Decision. It is the appellant's
What are the subject properties of the parties' respective responsibility to point out the perceived errors in the appealed
contracts with RBBI SDTcAH decision. When a party merely raises equitable considerations
such as the "clean hands" doctrine without a clear-cut legal
Our Ruling basis and cogent arguments to support his claim, there should
be no surprise if the Court is not swayed to exercise its
Propriety of the Petition appellate jurisdiction and the appeal is dismissed outright.
The dismissal of an appeal does not always and necessarily
Respondents maintain that the instant petition for review mean that the appealed decision is correct, for it could simply
raises factual issues which are beyond the province of Rule be the result of the appellant's inadequate discussion,
45. 34 ineffectual arguments, or even procedural lapses.
The issues involved herein are not entirely factual. Petitioners RBBI's failure to convince the Court of the merits of its appeal
assail the appellate court's rejection of their evidence (as to should not prejudice petitioners who were not parties to
the contractual intent) as inadmissible under the Best RBBI's appeal, especially because petitioners duly filed a
Evidence Rule. The question involving the admissibility of separate appeal and were able to articulately and effectively
evidence is a legal question that is within the Court's authority present their arguments. A party cannot be deprived of his
to review. 35 right to appeal an adverse decision just because another
party had already appealed ahead of him, 38 or just because
Besides, even if it were a factual question, the Court is not
the other party's separate appeal had already been dismissed.
precluded to review the same. The rule that a petition for
39
review should raise only questions of law admits of
exceptions, among which are "(1) when the findings are There is another reason not to bind the petitioners to the final
grounded entirely on speculations, surmises, or conjectures; judgment against RBBI. RBBI executed the transfer (VLTs) in
(2) when the inference made is manifestly mistaken, absurd favor of petitioners prior to the commencement of the action.
or impossible; (3) when there is grave abuse of discretion; (4) Thus, when the action for cancellation of CLOA was filed, RBBI
when the judgment is based on a misappreciation of facts; (5) had already divested itself of its title to the two properties
when the findings of fact are conflicting; (6) when, in making involved. Under the rule on res judicata, a judgment (in
its findings, the same are contrary to the admissions of both personam) is conclusive only between the parties and their
appellant and appellee; (7) when the findings are contrary to successors-in-interest by title subsequent to the
those of the trial court; (8) when the findings are conclusions commencement of the action. 40 Thus, when the vendor (in
without citation of specific evidence on which they are based; this case RBBI) has already transferred his title to third
(9) when the facts set forth in the petition as well as in the persons (petitioners), the said transferees are not bound by
petitioner's main and reply briefs are not disputed by the any judgment which may be rendered against the vendor. 41
respondent; and (10) when the findings of fact are premised STcEIC
on the supposed absence of evidence and contradicted by the
evidence on record." 36 SCHcaT Second Issue
In the instant case, we find sufficient basis to apply the Is it correct to apply the Best Evidence Rule?
exceptions to the general rule because the appellate court
misappreciated the facts of the case through its erroneous Citing the Best Evidence Rule in Rule 130, Section 3, the CA
application of the Best Evidence Rule, as will be discussed held that the Deed of Sale between respondents and RBBI is
below. Moreover, the disparate rulings of the three reviewing the best evidence as to the property that was sold by RBBI to
bodies below are sufficient for the Court to exercise its the respondents. Since the Deed of Sale stated that its subject
jurisdiction under Rule 45. is the land covered by TCT No. T-62096 the title for the
Murong property then the property repurchased by the
First Issue respondents was the Murong property. Likewise, the CA held
that since the VLTs between petitioners and RBBI refer to TCT
Dismissal of RBBI's appeal No. T-62836 the title for the Lantap property then the
property transferred to petitioners was the Lantap property.
Respondents maintain that the Court's earlier dismissal of
RBBI's petition for review of the same CA Decision is eloquent Petitioners argue that the appellate court erred in using the
proof that there is no reversible error in the appellate court's best evidence rule to determine the subject of the Deed of
decision in favor of the respondents. 37 Sale and the Deeds of Voluntary Land Transfer. They maintain
that the issue in the case is not the contents of the contracts
We are not persuaded. This Court dismissed RBBI's earlier
but the intention of the parties that was not adequately
petition in G.R. No. 163320 because it failed to convincingly
expressed in their contracts. Petitioners then argue that it is
demonstrate the alleged errors in the CA Decision. The bank
the Parol Evidence Rule that should be applied in order to
did not point out the inadequacies and errors in the appellate
adequately resolve the dispute.
court's decision but simply placed the responsibility for the
confusion on the respondents for allegedly misleading the

Indeed, the appellate court erred in its application of the Best privy of a party to the written document in question, and does
Evidence Rule. The Best Evidence Rule states that when the not base his claim on the instrument or assert a right
subject of inquiry is the contents of a document, the best originating in the instrument. 44
evidence is the original document itself and no other evidence
(such as a reproduction, photocopy or oral evidence) is Moreover, the instant case falls under the exceptions to the
admissible as a general rule. The original is preferred because Parol Evidence Rule, as provided in the second paragraph of
it reduces the chance of undetected tampering with the Rule 130, Section 9: TcSAaH
document. 42
However, a party may present evidence to modify, explain or
In the instant case, there is no room for the application of the add to the terms of the written agreement if he puts in issue
Best Evidence Rule because there is no dispute regarding the in his pleading:
contents of the documents. It is admitted by the parties that
the respondents' Deed of Sale referred to TCT No. T-62096 as (1) An intrinsic ambiguity, mistake or imperfection in the
its subject; while the petitioners' Deeds of Voluntary Land written agreement;
Transfer referred to TCT No. T-62836 as its subject, which is
further described as located in Barangay Murong. DSAICa (2) The failure of the written agreement to express the
true intent and agreement of the parties thereto;
The real issue is whether the admitted contents of these
documents adequately and correctly express the true xxx xxx xxx (Emphasis supplied)
intention of the parties. As to the Deed of Sale, petitioners
(and RBBI) maintain that while it refers to TCT No. T-62096, Here, the petitioners' VLTs suffer from intrinsic ambiguity. The
the parties actually intended the sale of the Lantap property VLTs described the subject property as covered by TCT No. T-
(covered by TCT No. T-62836). 62836 (Lantap property), but they also describe the subject
property as being located in "Barangay Murong." Even the
As to the VLTs, respondents contend that the reference to TCT respondents' Deed of Sale falls under the exception to the
No. T-62836 (corresponding to the Lantap property) reflects Parol Evidence Rule. It refers to "TCT No. T-62096" (Murong
the true intention of RBBI and the petitioners, and the property), but RBBI contended that the true intent was to sell
reference to "Barangay Murong" was a typographical error. On the Lantap property. In short, it was squarely put in issue that
the other hand, petitioners claim that the reference to the written agreement failed to express the true intent of the
"Barangay Murong" reflects their true intention, while the parties.
reference to TCT No. T-62836 was a mere error. This dispute
reflects an intrinsic ambiguity in the contracts, arising from an Based on the foregoing, the resolution of the instant case
apparent failure of the instruments to adequately express the necessitates an examination of the parties' respective parol
true intention of the parties. To resolve the ambiguity, resort evidence, in order to determine the true intent of the parties.
must be had to evidence outside of the instruments. Well-settled is the rule that in case of doubt, it is the intention
of the contracting parties that prevails, for the intention is the
The CA, however, refused to look beyond the literal wording of soul of a contract, 45 not its wording which is prone to
the documents and rejected any other evidence that could mistakes, inadequacies, or ambiguities. To hold otherwise
shed light on the actual intention of the contracting parties. would give life, validity, and precedence to mere
Though the CA cited the Best Evidence Rule, it appears that typographical errors and defeat the very purpose of
what it actually applied was the Parol Evidence Rule instead, agreements. SAcaDE
which provides: DaTICE
In this regard, guidance is provided by the following articles of
When the terms of an agreement have been reduced to the Civil Code involving the interpretation of contracts:
writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their Article 1370. If the terms of a contract are clear and leave
successors in interest, no evidence of such terms other than no doubt upon the intention of the contracting parties, the
the contents of the written agreement. 43 literal meaning of its stipulations shall control.
The Parol Evidence Rule excludes parol or extrinsic evidence If the words appear to be contrary to the evident intention of
by which a party seeks to contradict, vary, add to or subtract the parties, the latter shall prevail over the former.
from the terms of a valid agreement or instrument. Thus, it
appears that what the CA actually applied in its assailed Article 1371. In order to judge the intention of the
Decision when it refused to look beyond the words of the contracting parties, their contemporaneous and subsequent
contracts was the Parol Evidence Rule, not the Best Evidence acts shall be principally considered.
Rule. The appellate court gave primacy to the literal terms of
Rule 130, Section 13 which provides for the rules on the
the two contracts and refused to admit any other evidence
interpretation of documents is likewise enlightening:
that would contradict such terms.
Section 13. Interpretation according to circumstances.

However, even the application of the Parol Evidence Rule is
For the proper construction of an instrument, the
improper in the case at bar. In the first place, respondents are
circumstances under which it was made, including the
not parties to the VLTs executed between RBBI and
situation of the subject thereof and of the parties to it, may be
petitioners; they are strangers to the written contracts. Rule
shown, so that the judge may be placed in the position of
130, Section 9 specifically provides that parol evidence rule is
those whose language he is to interpret.
exclusive only as "between the parties and their successors-
in-interest." The parol evidence rule may not be invoked
where at least one of the parties to the suit is not a party or a

Applying the foregoing guiding rules, it is clear that the Deed contract (VLTs) is the Murong property, not the Lantap
of Sale was intended to transfer the Lantap property to the property. Conversely, there has been no contrary evidence of
respondents, while the VLTs were intended to convey the the parties' actuations to indicate that they intended the sale
Murong property to the petitioners. This may be seen from the of the Lantap property. Thus, it appears that the reference in
contemporaneous and subsequent acts of the parties. their VLT to TCT No. T-62836 (Lantap property) was due to
aHcACT their honest but mistaken belief that the said title covers the
Murong property. Such a mistake is not farfetched considering
Third issue that TCT No. T-62836 only refers to the Municipality of
Bayombong, Nueva Vizcaya, and does not indicate the
Determining the intention of the parties particular barangay where the property is located. Moreover,
both properties are bounded by a road and public land. Hence,
regarding the subjects of their contracts were it not for the detailed technical description, the titles for
the two properties are very similar.
We are convinced that the subject of the Deed of Sale
between RBBI and the respondents was the Lantap property, The respondents attempt to discredit petitioners' argument
and not the Murong property. After the execution in 1985 of that their VLTs were intrinsically ambiguous and failed to
the Deed of Sale, the respondents did not exercise acts of express their true intention by asking why petitioners never
ownership that could show that they indeed knew and filed an action for the reformation of their contract. 46 A
believed that they repurchased the Murong property. They did cause of action for the reformation of a contract only arises
not take possession of the Murong property. As admitted by when one of the contracting parties manifests an intention, by
the parties, the Murong property was in the possession of the overt acts, not to abide by the true agreement of the parties.
petitioners, who occupied and tilled the same without any 47 It seems fairly obvious that petitioners had no cause to
objection from the respondents. Moreover, petitioners paid reform their VLTs because the parties thereto (RBBI and
leasehold rentals for using the Murong property to RBBI, not to petitioners) never had any dispute as to the interpretation and
the respondents. application thereof. They both understood the VLTs to cover
the Murong property (and not the Lantap property). It was
Aside from respondents' neglect of their alleged ownership only much later, when strangers to the contracts argued for a
rights over the Murong property, there is one other different interpretation, that the issue became relevant for the
circumstance that convinces us that what respondents really first time. ASaTHc
repurchased was the Lantap property. Respondent Nemi
(husband of respondent Elenita) is the farmer actually tilling All told, we rule that the Deed of Sale dated February 26,
the Lantap property, without turning over the supposed 1985 between respondents and RBBI covers the Lantap
landowner's share to RBBI. This strongly indicates that the property under TCT No. T-62836, while the Deeds of Voluntary
respondents considered themselves (and not RBBI) as the Land Transfer and TCT Nos. CLOA-395 and CLOA-396 of the
owners of the Lantap property. For if respondents (particularly petitioners cover the Murong property under TCT No. T-62096.
spouses Elenita and Nemi) truly believed that RBBI retained In consequence, the CA's ruling against RBBI should not be
ownership of the Lantap property, how come they never executed as such execution would be inconsistent with our
complied with their obligations as supposed tenants of RBBI's ruling herein. Although the CA's decision had already become
land? The factual circumstances of the case simply do not final and executory as against RBBI with the dismissal of
support the theory propounded by the respondents. DCIEac RBBI's petition in G.R. No. 163320, our ruling herein in favor of
petitioners is a supervening cause which renders the
We are likewise convinced that the subject of the Deeds of execution of the CA decision against RBBI unjust and
Voluntary Land Transfer (VLTs) in favor of petitioners was the inequitable.
Murong property, and not the Lantap property. When the VLTs
were executed in 1990, petitioners were already the tenant- WHEREFORE, the Petition for Review on Certiorari is
farmers of the Murong property, and had been paying rentals GRANTED. The assailed October 7, 2003 Decision, as well as
to RBBI accordingly. It is therefore natural that the Murong the May 11, 2005 Resolution of the Court of Appeals in CA-
property and no other was the one that they had intended to G.R. SP No. 69981 are REVERSED and SET ASIDE. The January
acquire from RBBI with the execution of the VLTs. Moreover, 17, 2001 Decision of the DARAB Central Office is REINSTATED.
after the execution of the VLTs, petitioners remained in The Deed of Sale dated February 26, 1985 between
possession of the Murong property, enjoying and tilling it respondents and Rural Bank of Bayombong, Inc. covers the
without any opposition from anybody. Subsequently, after the Lantap property under TCT No. T-62836, while the Deeds of
petitioners completed their payment of the total purchase Voluntary Land Transfer and TCT Nos. CLOA-395 and CLOA-396
price of P90,000.00 to RBBI, the Department of Agrarian of the petitioners cover the Murong property under TCT No. T-
Reform (DAR) officials conducted their investigation of the 62096. The Register of Deeds of Nueva Vizcaya is directed to
Murong property which, with the presumption of regularity in make the necessary corrections to the titles of the said
the performance of official duty, did not reveal any anomaly. properties in accordance with this Decision. Costs against
Petitioners were found to be in actual possession of the respondents. SO ORDERED.
Murong property and were the qualified beneficiaries thereof.
Thus, the DAR officials issued CLOAs in petitioners' favor; and FIRST DIVISION
these CLOAs explicitly refer to the land in Barangay Murong.
All this time, petitioners were in possession of the Murong [G.R. No. 150931. July 16, 2008.]
property, undisturbed by anyone for several long years, until
respondents started the controversy in 1997. CDHSac DR. CECILIA DE LOS SANTOS, petitioner, vs. DR. PRISCILA
BAUTISTA VIBAR, respondent.
All of these contemporaneous and subsequent actions of RBBI
and petitioners support their position that the subject of their DECISION

CARPIO, J p: (b) the annexes were not marked; HDICSa
The Case (c) the family names of Jose and Evangeline, registered
owners, do not tally with those on the title; 12 and
Before the Court is a petition for review on certiorari 1
assailing the Decision 2 dated 29 June 2001 and Resolution 3 (d) there is no statement that there is no other provision
dated 21 November 2001 of the Court of Appeals in CA-G.R. in the Property Registration Decree for registering the same.
CV No. 66605. TcHCIS
On 20 November 1996, Priscila filed an action for recovery of
The Facts money with the Regional Trial Court of Quezon City, Branch
100, against de Leon and Cecilia. 13 De Leon did not file an
Petitioner Cecilia de los Santos (Cecilia) and respondent answer and the trial court declared him in default. Cecilia, on
Priscila Bautista Vibar (Priscila) were former co-workers in the the other hand, filed an answer denying that she signed as
Medical Department of the Social Security System. They were guarantor of de Leon's loan.
close and trusted friends for 33 years.
On 26 November 1999, the trial court ruled in favor of Cecilia
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) and dismissed the complaint for insufficiency of evidence. 14
to Priscila. De Leon needed money and borrowed P100,000 On 12 January 2000, Priscila filed a Motion for Reconsideration
from Priscila. De Leon issued a promissory note dated 2 June on the grounds that the trial court erred in (a) dismissing the
1994 and bound himself to pay the loan three months from complaint against de Leon despite his being declared in
date with a monthly interest rate of 3%. 4 Cecilia signed as a default; and (b) finding that Cecilia was not a guarantor of de
guarantor of de Leon's loan. Leon's loan.
On 28 June 1995, de Leon asked Priscila for another loan. In an Order dated 8 February 2000, 15 the trial court modified
Together with Cecilia and Avelina Conte, de Leon went to its decision and ruled that de Leon acted fraudulently or in
Priscila's house. Priscila and her sister, Atty. Josefina Bautista bad faith in refusing to pay his debt to Priscila. However, the
(Atty. Bautista), were present in the same gathering. After trial court affirmed its decision dismissing the complaint
some discussion, they all agreed that the outstanding against Cecilia. The trial court ruled that there was no express
P100,000 loan together with the accrued interest would be consent given by Cecilia binding her as guarantor. The
deducted from the new loan of P500,000. 5 dispositive portion of the Order provides: CSDcTA
De Leon signed a typewritten promissory note, which he WHEREFORE, in view of the foregoing, the Decision of the
brought with him, acknowledging the debt of P500,000 Court dated November 26, 1999, is hereby amended as
payable within 12 months from 28 August 1995, at a fixed follows:
monthly interest rate of 3% and a penalty of 2% per month in
case of default. 6 Then, Cecilia signed as a witness under the WHEREFORE, judgment is hereby rendered in favor of plaintiff
phrase "signed in the presence of". However, Atty. Bautista Dra. Priscila Vibar and against defendant Jose de Leon, and
brought up the need for Cecilia to sign as guarantor. hereby orders the latter to pay the plaintiff the following
Thereupon, de Leon, in his own handwriting, inserted the word amounts:
"guarantor" besides Cecilia's name, as Cecilia nodded her
head to what de Leon was doing. De Leon also added the (1) P500,000.00 representing the total amount of the
phrase, "as security for this loan this TCT No. T-47375, loan extended with interest at 3% per month and penalty of
Registry of Baguio City, is being submitted by way of 2% per month (due to default) from July 17, 1996 until the
mortgage." ADSTCI obligation is fully paid;
On maturity date, de Leon failed to pay any of the monthly (2) P30,000.00 representing moral damages;
installments. Priscila made several verbal demands on de
Leon for payment but to no avail. Priscila's counsel then sent (3) P20,000.00 representing attorney's fees; and
de Leon a demand letter dated 17 July 1996 asking for
payment of the principal loan with interest and penalties. 7 De (4) costs of suit.
Leon failed to respond. On 4 September 1996, Priscila's
counsel again sent a demand letter not only to de Leon as Further, the Court hereby DISMISSES the instant complaint
principal debtor, but also to Cecilia. 8 Cecilia was being made against defendant Dra. Cecilia de los Santos for insufficiency
to answer for de Leon's debt as the latter's guarantor. Cecilia of evidence. No pronouncement as to costs. HCITDc
then remitted to Priscila P15,000 to pay one month's interest
on the loan. 9 However, this was the only payment Cecilia SO ORDERED.
made to Priscila as Cecilia claimed she had no money to pay
Priscila filed an appeal with the Court of Appeals, docketed as
the full amount of the loan.
CA-G.R. CV No. 66605.
After several failed attempts to collect the loan, Priscila filed
The Ruling of the Court of Appeals
with the Registry of Deeds of Baguio City an adverse claim on
the property registered under TCT No. T-47375. However, the
On 29 June 2001, the appellate court affirmed the trial court's
Register of Deeds denied the registration of Priscila's claim on
ruling against de Leon but modified the same with respect to
several grounds: 10
Cecilia. 16 The appellate court declared Cecilia as guarantor
of de Leon's loan. The relevant portions of the Decision state:
(a) the issue involved is a money claim which does not
fall within Section 70 of Presidential Decree No. 1529; 11

. . . The conduct of defendant-appellee de los Santos during promissory note show that she agreed to be a guarantor, just
the signing, however, belies her intention to act merely as a like in the first promissory note. Even after discovering that
witness. It cannot be gainsaid that she did not react when she the loan was unpaid and already overdue, Cecilia did not
heard Atty. Bautista's protest about her signing the promissory contest that she was a guarantor and even paid partially to
note in the capacity only of a witness and not as a guarantor. Priscila. Instead, Cecilia claimed she had no money to pay the
Neither did defendant-appellee de los Santos object when entire loan. It was only after the case was filed that Cecilia
defendant-appellee de Leon got back the promissory note and challenged the insertions in the promissory note. Hence,
wrote the word "guarantor" after her signature in full view of Priscila insists that Cecilia is estopped from denying that she
all those present, including defendant-appellee de los Santos. is a guarantor. cCAIDS
In fact, said appellee nodded, signifying approval, when
defendant-appellee de Leon placed the word "guarantor" after The Court's Ruling
her signature on the promissory note. CTAIDE
The issue before us is a question of fact, the determination of
xxx xxx xxx which is beyond this Court's power of review for it is not a trier
of facts. 18 However, there are instances when questions of
In this factual milieu, if defendant-appellee de los Santos fact may be reviewed by this Court, as when the findings of
intended only to sign as a witness, she should have reacted the Court of Appeals are contrary to those of the trial court.
when the word "guarantor" was written on the note in her 19 In the present case, the trial court and the Court of Appeals
presence. She should have expressed her strong and firm made conflicting findings of fact. Thus, a review of such
objections to such imposition of liability. But defendant- factual findings is in order.
appellee de los Santos kept mum. Such silence can lead to no
other conclusion that she has impliedly given her consent to Here, the controversy centers on whether there exists a
be the guarantor of de Leon's loan. contract of guaranty to hold Cecilia liable for the loan of de
Leon, the principal debtor. The trial court found that Cecilia
Moreover, defendant-appellee de los Santos is estopped from had no knowledge of, and did not consent to, the guaranty. On
claiming otherwise. Estoppel in pais arises . . . . the other hand, the appellate court ruled that Cecilia's
conduct during the signing of the promissory note and her
Moreover, one can imply from defendant-appellee de los non-objection to the insertion of the word "guarantor" show
Santos' letter dated May 5, 1996 addressed to the Register of that she acted as guarantor. Cecilia's nodding of her head
Deeds, City of Baguio that defendant-appellee de los Santos upon the insertion of the word "guarantor" signified her
agreed to be bound as guarantor . . . . ScAIaT consent to be a guarantor.
It is significant to note that she made no statement therein We rule that Cecilia was a guarantor of de Leon's loan.
repudiating her having signed the same in the capacity of a
guarantor, contrary to what she now claims in her defense. Cecilia denies that she had actual knowledge of the guaranty.
Her failure to correct or refute such statement reinforces the However, Priscila points to the promissory note and Cecilia's
claim that indeed she guaranteed payment of the loan in actions as the best evidence to prove that Cecilia signed as
question, and that writing was to her interest considering her guarantor. The promissory note indicates that Cecilia signed
liabilities under the note as guarantor. as a witness, as manifested by the typewritten format.
However, the word "guarantor" as handwritten beside
. . . Thus, defendant-appellee de los Santos can be compelled Cecilia's name makes Cecilia a guarantor. From the records of
to pay plaintiff-appellant Vibar the judgment debt if it remains the case and the evidence presented, we are convinced that
unsatisfied after execution is enforced against the properties the insertion was made with the express consent of Cecilia.
of the principal debtor, defendant-appellee Jose de Leon. . . . DcHaET
Cecilia filed a Motion for Reconsideration which the appellate Firstly, Cecilia's act of "nodding her head" signified her assent
court denied in a Resolution dated 21 November 2001. 17 to the insertion of the word "guarantor". The word "guarantor"
could have been inserted by Cecilia herself, or by someone
Hence, this petition. authorized by Cecilia. In either case, Cecilia would be bound
as guarantor. In this case, Cecilia, by nodding her head,
The Issue authorized de Leon, who prepared the promissory note, to
insert the word "guarantor". Since de Leon made the insertion
The main issue for resolution is whether Cecilia is liable as only after Atty. Bautista had raised the need for Cecilia to be a
guarantor of de Leon's loan from Priscila. SIAEHC guarantor, a positive or negative reaction was expected from
Cecilia, who responded by giving her nod of approval.
Cecilia contends that she is not liable as guarantor. Her Otherwise, Cecilia should have immediately expressed her
behavior, as when she allegedly "kept mum" or "nodded her objection to the insertion of the word "guarantor". Cecilia's act
head and smiled", was not an implied consent as guarantor. of nodding her head showed her consent to be a guarantor.
She insists that the law is clear that a guaranty is not
presumed and that there must be a concrete positive act of Secondly, Priscila would not have extended a loan to de Leon
acceptance or consent to the guaranty. Thus, without such without the representations of Cecilia. Cecilia arranged for de
knowledge or consent, there is no estoppel in pais. Leon and Priscila to meet so that de Leon could borrow money
from Priscila. Cecilia vouched for de Leon's capacity to pay. As
Priscila, on the other hand, maintains that from the totality of a friend and common link between the borrower and lender,
Cecilia's acts, she consented to be bound as guarantor of de Cecilia took active part in the first loan of P100,000 and even
Leon's loan. Her nod of approval and non-objection to the signed as guarantor. On the second promissory note, the word
insertion of the word "guarantor" at the signing of the second "guarantor" again appears, admitted by both Cecilia and

Priscila as an insertion made by de Leon at the time of Sec. 15. Written words control printed. When an instrument
signing. The first loan of P100,000, which Cecilia guaranteed, consists partly of written words and partly of a printed form,
was paid from the proceeds of the second loan. As shown by and the two are inconsistent, the former controls the latter.
the intervention of Atty. Bautista in bringing up the need for
Cecilia to act as guarantor, Priscila would not have granted The rationale for this rule is that the written words are the
the second bigger loan of P500,000 without the guaranty of latest expression of the will of the parties. Thus, in this case,
Cecilia. It was only natural for Priscila to commit to the second the latest expression of Cecilia's will is that she signed the
bigger loan subject at least to the same guarantee as the first promissory note as guarantor.
smaller loan. ScaHDT
We agree with the Court of Appeals that estoppel in pais arose
Thirdly, Cecilia claimed ignorance of the guaranty only after in this case. Generally, estoppel is a doctrine that prevents a
this case was filed. However, the records show that Cecilia person from adopting an inconsistent position, attitude, or
had several meetings with Priscila and the latter's counsel action if it will result in injury to another. 24 One who, by his
before the demand letters were sent. 20 In these meetings, acts, representations or admissions, or by his own silence
Cecilia acknowledged her liability as guarantor but simply when he ought to speak out, intentionally or through culpable
claimed that she had no money to pay Priscila. 21 In fact, negligence, induces another to believe certain facts to exist
Cecilia made an initial payment of P15,000 as partial and such other rightfully relies and acts on such belief, can no
compliance of her obligation as guarantor. This only shows longer deny the existence of such fact as it will prejudice the
that Cecilia never denied her liability to Priscila as guarantor latter. 25 CHDTEA
until this case was filed in court.
Cecilia's conduct in the course of the negotiations and
Lastly, Cecilia wrote a letter to the Register of Deeds of contract signing shows that she consented to be a guarantor
Baguio City inquiring on the status of the property mentioned of the loan as witnessed by everyone present. Her act of
in the promissory note as a mortgage security for de Leon's "nodding her head", and at the same time even smiling,
loan. 22 The letter states: DTCAES expressed her voluntary assent to the insertion of the word
"guarantor" after her signature. It is the same as saying that
May 5, 1996 she agreed to the insertion. Also, Cecilia's acts of making the
partial payment of P15,000 and writing the letter to the
The Register of Deeds Register of Deeds sustain the ruling that Cecilia affirmed her
obligation as de Leon's guarantor to the loan. Thus, Cecilia is
City of Baguio now estopped from denying that she is a guarantor.
Sir: WHEREFORE, we DENY the petition. We AFFIRM the 29 June

2001 Decision and 21 November 2001 Resolution of the Court
This is relative to a "Promissory Note" dated June 28, 1995 . . . of Appeals in CA-G.R. CV No. 66605. Costs against petitioner.
. SO ORDERED.
In the aforestated "Promissory Note", the undersigned EN BANC

appears to be a "Guarantor" and it is a condition therein that
"as security for this loan this TCT No. 47375, Registry of [G.R. No. 32986. November 11, 1930.]
Baguio City, is being submitted, by way of mortgage".
However, information has been received that said registered FRANCISCO JARQUE, plaintiff-appellee, vs. SMITH, BELL & CO.,
owners, individually or collectively, have executed and filed LTD., ET AL., defendants. UNION FIRE INSURANCE CO.,
with your Office an "affidavit of loss" of said duplicate owner's appellant.
copy. If such information is correct, may I request for a
"certification" to said effect, and possibly, a certified true copy Benj. S. Ohnick for appellant.
of such document.
Vicente Pelaez for appellee.
xxx xxx xxx
SYLLABUS
Here, Cecilia clearly stated that she "appears to be a
guarantor" in the promissory note. This serves as a written 1. COMMERCIAL LAW; RULES OF EVIDENCE;
admission that Cecilia knew she was a guarantor. During the INSTRUMENT PARTLY WRITTEN AND PARTLY PRINTED.
trial, Cecilia did not impugn the letter or its contents. In fact, Section 291 of the Code of Civil Procedure provides that
Cecilia submitted this letter in evidence. 23 Cecilia wrote the "when an instrument consists partly of written words and
Register of Deeds to protect her interest, hoping that the partly of a printed form and the two are inconsistent, the
property covered by TCT No. T-47375 could answer for de former controls the latter." It follows that in case repugnance
Leon's loan and save her from personally paying as guarantor. exists between written and printed portions of a policy, the
This explains Cecilia's letter admitting that she appears as a written portion prevails, and there can be no question that as
guarantor in the promissory note. CSDcTH far as any inconsistency exists, a typed "rider" prevails over
the printed clause it covers.
It is axiomatic that the written word "guarantor" prevails over
the typewritten word "witness". In case of conflict, the written 2. ID.; LIABILITY AND INSURER. In the absence of
word prevails over the printed word. Section 15 of Rule 130 positive legislation to the contrary, the liability of the
provides: defendant insurance company on its policy would perhaps be
limited to "absolute loss of the vessel only, and to pay
proportionate salvage of the declared value." But the policy

was executed in this jurisdiction and "warranted to trade Insurance shall be of as much force and Virtue as the surest
within the waters of the Philippine Archipelago only." Here the Writing or Policy of Insurance made in LONDON."
liability for contribution in general average is not based on the
express terms of the policy, but rests upon the theory that Attached to the policy over and above the said clause is a
from the relation of the parties and for their benefit, a quasi "rider" containing typewritten provisions, among which
contract is implied by law. It simply places the insurer on the appears in capitalized type the following clause:
same footing as other persons who have an interest in the
vessel, or the cargo therein, at the time of the occurrence of "AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY,
the general average and who are compelled to contribute. AND TO PAY PROPORTIONATE SALVAGE CHARGES OF THE
DECLARED VALUE."
DECISION
At the bottom of the same rider following the typewritten
OSTRAND, J p: provisions therein set forth are the following words: "Attaching
to and forming part of the National Union Fire Insurance Co.,
The plaintiff was the owner of the motorboat Pandan and held Hull Policy No. 1055."
a marine insurance policy for the sum of P45,000 on the boat,
the policy being issued by the National Union Fire Insurance It is a well settled rule that in case repugnance exists between
Company and according to the provisions of a "rider" attached written and printed portions of a policy, the written portion
to the policy, the insurance was against the "absolute total prevails, and there can be no question that as far as any
loss of the vessel only." On October 31, 1928, the ship ran into inconsistency exists, the above-mentioned typed "rider"
very heavy sea off the Island of Ticlin, and it became prevails over the printed clause it covers. Section 291 of the
necessary to jettison a portion of the cargo. As a result of the Code of Civil Procedure provides that "when an instrument
jettison, the National Union Fire Insurance Company was consists partly of written words and partly of a printed form
assessed in the sum of P2,610.86 as its contribution to the and the two are inconsistent, the former controls the latter."
general average. The insurance company, insisting that its (See also Joyce on Insurance, 2d ed., sec. 224, page 600;
obligation did not extend beyond the insurance of the Arnould on Marine Insurance, 9th ed., sec. 73; Marine
"absolute total loss of the vessel only, and to pay Equipment Corporation vs. Automobile Insurance Co., 24 Fed.
proportionate salvage of the declared value," refused to (2d), 600; and Marine Insurance Company vs. McLahanan, 290
contribute to the settlement of the general average. The Fed., 685, 688.)
present action was thereupon instituted, and after trial the
court below rendered judgment in favor of the plaintiff and II. In the absence of positive legislation to the contrary,
ordered the defendant National Union Fire Insurance Company the liability of the defendant insurance company on its policy
to pay the plaintiff the sum of P2,610.86 as its part of the would, perhaps, be limited to "absolute loss of the vessel only,
indemnity for the general average brought about by the and to pay proportionate salvage of the declared value." But
jettison of cargo. The insurance company appealed to this the policy was executed in this jurisdiction and "warranted to
court and assigns as errors (1) "that the lower court erred in trade within the waters of the Philippine Archipelago only."
disregarding the typewritten clause endorsed upon the policy, Here the liability for contribution in general average is not
Exhibit A, expressly limiting insurer's liability thereunder of based on the express terms of the policy, but rests upon the
the total loss of the wooden vessel Pandan and to theory that from the relation of the parties and for their
proportionate salvage charges," and (2) "that the lower court benefit, a quasi contract is implied by law. Article 859 of the
erred in concluding that defendant and appellant, National Code of Commerce is still in force and reads as follows:
Union Fire Insurance Company is liable to contribute to the
general average resulting from the jettison of a part of said "ART. 859. The underwriters of the vessel, of the freight, and
vessel's cargo." of the cargo shall be obliged to pay for the indemnity of the
gross average in so far as is required of each one of these
I. As to the first assignment of error, little need be said. objects respectively."
The insurance contract, Exhibit A, is printed in the English
common form of marine policies. One of the clauses of the The article is mandatory in its terms, and the insurers,
document originally read as follows: whether for the vessel or for the freight or for the cargo, are
bound to contribute to the indemnity of the general average.
"Touching the Adventures and Perils which the said National And there is nothing unfair in that provisions; it simply places
Union Fire Insurance Company is content to bear, and to take the insurer on the same footing as other persons who have an
upon them in this Voyage; they are of the Seas, Men-of-War, interest in the vessel, or the cargo therein, at the time of the
Fire, Pirates, Thieves, Jettison, Letters of Mart and occurrence of the general average and who are compelled to
Countermart, Surprisals, and Takings at Sea. Arrests, contribute (art. 812, Code of Commerce).
Restraints and Detainments, of all Kings, Princes and People of
what Nation, Condition or Quality soever; Barratry of the In the present case it is not disputed that the ship was in
Master and Marines, and of all other Perils, Losses and grave peril and that the jettison of part of the cargo was
Misfortunes, that have or shall come to the Hurt, Detriment, or necessary. If the cargo was in peril to the extent of call for
Damage of the said Vessel or any part thereof; and in case of general average, the ship must also have been in great
any Loss or Misfortunes, it shall be lawful for the Assured, his danger, possibly sufficient to cause its absolute loss. The
or their Factors, Servants, or assigns, to sue, labour and travel jettison was therefore as much to the benefit of the
for, in and about the Defence. Safeguard, and recovery of the underwriter as to the owner of the cargo. The latter was
said Vessel or any part thereof, without Prejudice to this compelled to contribute to the indemnity; why should not the
Insurance; to the Charges whereof the said Company, will insurer be required to do likewise? If no jettison had taken
contribute, according to the rate and quantity of the sum place and if the ship by reason thereof had foundered, the
herein assured. And it is agreed that this Writing or Policy of

underwriter's loss would have been many times as large as 055 Phil 226
the contribution now demanded.
SECOND DIVISION
The appealed judgment is affirmed with the costs against the
appellant. So ordered. [G.R. No. 32958. November 8, 1930.]
Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur. BLOSSOM & COMPANY, INC., plaintiff-appellant, vs. MANILA
GAS CORPORATION, defendant-appellee.
Separate Opinions
Harvey & O'Brien for appellant.
JOHNSON and STREET, JJ., dissenting:
Ross, Lawrence & Selph and John B. Miller for appellee.
In view of the fact that the policy of marine insurance which is
the subject of this action contained a provision to the effect SYLLABUS
that the risk insured against was "the absolute total loss of
the vessel only," the undersigned are of the opinion that the 1. WHEN FORMER JUDGMENT IS A BAR. In its
defendant insurance company is not liable to contribute to the compliant of March 3, 1927, plaintiff seeks to recover
gross average incident to the jettison of some of the freight damages accrued since November 23, 1923, for a willful
embarked on the vessel which was the subject of insurance. It breach of a contract for the sale and delivery of water gas and
is true that article 859 of the Code of Commerce declares that coal gas tar at stipulated prices, and for answer defendant
the underwriters of the vessel, of the freight, and of the cargo alleges that in the former action in the Court of First Instance
shall be obliged to pay for the indemnity of the gross average of the City of Manila, in which plaintiff here was the plaintiff,
in so far as is required of each one of these objects and the defendant here was the defendant, and founded upon
respectively, but that provision evidently states a general rule the same cause of action alleged in the complaint that
to be applied where there are no words in the contract in any plaintiff recovered judgment against the defendant on the
wise qualifying the risk. This article, we think, should not be merits, decreeing a breach of the same contract and awarding
interpreted as abridging the freedom of contract between damages in favor of the plaintiff in the sum of P26,119.08 with
insurer and the insured; and where, as in the case before us, legal interest from November 23, 1923, which judgment
the words defining the risk plainly show that the risk is limited became and is now final. Held, That the judgment which the
so as to exclude the obligation to contribute in case of plaintiff obtained in the former action founded upon a breach
jettison, the intention expressed in the contract ought to be of the same contract is a bar to this action.
given effect. If the insurance had been written upon the cargo,
the case for the plaintiff would have been stronger; but it is 2. ONLY ONE CAUSE OF ACTION WHEN CONTRACT IS
certainly anomalous that an insurer of "the vessel only" ENTIRE. As a general rule, a contract to do several things at
should be held liable for the jettison of cargo, to which a several times is divisible, and a judgment for a single breach
contract of insurance does not extend. The language used in of a continuing contract is not a bar to a suit for a subsequent
the policy of insurance in this case clearly limits the risk breach. But where the contract is entire, and the breach total,
affirmatively to the vessel only, and the contract should be there can be only one action in which plaintiff must recover all
given effect according to the intention of the parties. damages.
The opinion of the court appears to proceed in part at least 3. WHEN CONTRACT IS INDIVISIBLE. When the
upon the idea that the insurer had a real interest in the vessel, defendant terminated a continuing contract by absolute
and that the insurance company was necessarily benefited by refusal in bad faith to perform, a claim for damages for a
a jettison of cargo, since the act may possibly have resulted in breach is an indivisible demand, and where, as in this case, a
saving the vessel from destruction. This idea appears to us to former final judgment was rendered, it is a bar to any
ignore the most fundamental conception underlying the law of damages which plaintiff may thereafter sustain.
insurance, which is that the contract of insurance is of an
aleatory nature. By this is meant that the contract is 4. WHAT PLAINTIFF SHOULD PROVE. In an indivisible
essentially a wager. It results that the insurer has no real contract plaintiff should prove in the first action not only such
interest whatever in the thing insured; and the question of the damages as it has then actually sustained, but also such
liability of the insurer limits itself to the question whether the prospective damages as it may be legally entitled to recover
contingency insured against has occurred. The circumstance by reason of the breach.
that the vessel may have been saved by jettison of the cargo
is irrelevant to the risk. We are of the opinion that the STATEMENT
judgment appealed from should be reversed and the
In its complaint filed March 3, 1927, the plaintiff alleges that
defendant absolved from the complaint.
on September 10, 1918, it entered into a contract with the
defendant in which the plaintiff promised and undertook to
purchase and receive from the defendant, and the defendant
Copyright 1994-1999 CD Technologies A agreed to sell and deliver to the plaintiff, for a period of four
s i a, I n c. years, three tons of water gas tar per month from September
to January 1, 1919, and twenty tons per month after January
1, 1919, for the remaining period of the contract; one-half ton
of coal gas tar a month from September to January 1, 1919,
G.R. No. 32958 November 8, 1930 and six tons per month after January 1, 1919, for the
remainder of the contract, delivery to be made at the plant of
Blossom & Co., Inc. v. Manila Gas Corp. the defendant in the City of Manila, without containers, and at

the price of P65 per ton for each kind of gas tar, it being subsequent breaches of said contract, which said decision, as
agreed that this price should prevail only so long as the raw shown by the copy attached hereto as Exhibit G, and made a
materials coal and crude oil used by the defendant in the part hereof, was affirmed by our Supreme Court on March 3,
manufacture of gas should cost the defendant the same price 1926;
as that prevailing at the time of the contract, and that in the
event of an increase or decrease in the cost of raw materials, "IX. That after the defendant had willfully and
there would be a corresponding increase or decrease in the deliberately violated its said contract, as herein-before
price of the tar. That on January 31, 1919, this contract was alleged, and the plaintiff had suffered great damage by reason
amended so that it should continue to remain in force for a thereof, the plaintiff claimed the right to off-set its damages
period of ten years from January 1, 1919, and it was agreed against the balance due from it to said defendant on account
that the plaintiff should not be obliged to take the quantities of the purchase of said land from the defendant, and
of the tars required during the year 1919, but that it might immediately thereupon and notwithstanding said defendant
purchase tars in such quantities as it could use to advantage was justly indebted to the plaintiff at that time, as shown by
at the stipulated price. That after the year 1919, the plaintiff the judgment of the court, Exhibit G, in more than four times
would take at least the quantities specified in the contract of the amount due to it from the plaintiff, the said defendant
September 10, 1918, to be taken from and after January 1, caused to be presented against the plaintiff a foreclosure
1919, and that at its option it would have the right to take any action, known as the Manila Gas Corporation versus Blossom
quantity of water gas tar in excess of the minimum quantity & Company, No. 24267, of the Court of First Instance of
specified in that contract, and up to the total amount of Manila, and obtained judgment therein ordering that Blossom
output of that tar of defendant's plant, and also to take any & Company pay the last installment and interest due on said
quantity of coal gas tar in excess of the minimum quantity land or else the land and improvements placed thereon by the
specified in that contract and up to 50 per cent of defendant's plaintiff would be sold, as provided by law in such cases of
entire output of coal gas tar, and that by giving the defendant satisfy the same, and the said defendant proceeded with the
ninety days' notice, it would have the right at its option to sale of said property under said judgment and did everything
take the entire output of defendant's coal gas tar, except such in its power to sell the same for the sole purpose of crushing
as it might need for its own use in and about its plant. That in and destroying the plaintiff's business and thus rendering it
consideration of this modification of the contract of impossible for the plaintiff herein to continue with its said
September 10, 1918, plaintiff agreed to purchase from the contract in the event that said defendant might in the future
defendant a certain piece of land lying adjacent to its plant at consider it more profitable to resume performance of the
the price of P5 per square meter, and proof of which is same, but fortunately the plaintiff was able to redeem its
evidenced by Exhibit C. That pursuant to Exhibit C, defendant property, as well as to comply with its contract, and continued
sold and conveyed the land to the plaintiff which in turn demanding that the defendant performed its said contract and
executed a mortgage thereon to the defendant for deliver to it the coal and water gas tar required thereby."
P17,140.20, to secure the payment of the balance of the
purchase price. That the defendant made no deliveries under its contract,
Exhibit C, from July, 1920, to March 26, 1926, or until after the
It is then alleged: Supreme Court affirmed the judgment of the lower court for
damages in the sum of P26,119.08. 1
"VIII. That about the last part of July, 1920, the defendant
herein, the Manila Gas Corporation, willfully and deliberately It is then alleged that:
breached its said contract, Exhibit C, with the plaintiff by
ceasing to deliver any coal and water gas tar to it thereunder ". . . On March 26, 1926, the said defendant offered to resume
solely because of the increased price of its tar products and delivery to the plaintiff from that date of the minimum
its desire to secure better prices therefor than plaintiff was monthly quantities of tars stated in its contract, and the
obligated to pay to it, notwithstanding the frequent and plaintiff believing that the said defendant was at least going
urgent demands made by the plaintiff upon it to comply with to try to act in good faith in the further performance of its said
its aforesaid contract by continuing to deliver the coal and contract, commenced to accept deliveries of said tars from it,
water gas tar to the plaintiff thereunder, but the said contract, and at once ascertained that the said defendant was
and finally on November 23, 1923, the plaintiff was forced to deliberately charging it prices much higher than the contract
commence action against the defendant herein in the Court of price, and while the plaintiff accepted deliveries of the
First Instance of Manila, being case No. 25352, of that court, minimum quantities of tars stated in said contract up to and
entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation, including January, 1927, (although it had demanded deliveries
defendant,' to recover the damages which it had up to that of larger quantities thereunder, as hereinafter alleged) and
time suffered by reason of such flagrant violation of said paid the increased prices demanded by the defendant, in the
contract on the part of the defendant herein, and to obtain the belief that it was its duty to minimize the damages as much
specific performance of the said contract, and after due trial as possible which the defendant would be required to pay to it
of that action, judgment was entered therein in favor of the by reason of its violation of said contract, it has in all cases
plaintiff herein and against the said defendant, the Manila Gas done so under protest and with the express reservation of the
Corporation, for the sum of P26,119.08, as the damages right to demand from the said defendant an adjustment of the
suffered by this plaintiff by the defendant's breach of said prices charged in violation of its contract, and the right to the
contract from July, 1920, up to and including September, payment of the losses which it had and would suffer by reason
1923, with legal interest thereon from November 23, 1923, of its refusal to make additional deliveries under said contract,
and for the costs but the court refused to order the said and it also has continuously demanded that the said
defendant to resume the delivery of the coal and water gas defendant furnish to it statements supported by its invoices,
tar to the plaintiff under said contract, but left the plaintiff showing the cost prices of its raw materials coal and crude
with its remedy for damages against said defendant for the oil upon which the contract price of the tars in question is
fixed, which is the only way the plaintiff has to calculate the

true price of said tars, but said defendant has and still refuses of action for the reason that a prior adjudication has been had
to furnish such information, and will continue to refuse to do of all the issues involved in this action, and, second, "that on
so, unless ordered to furnish such information to the plaintiff or about the 16th day of June, 1925, in an action brought in
by the court, and the plaintiff believes from the information the Court of First Instance of the City of Manila, Philippine
which it now has and so alleges that the said defendant has Islands, before the Honorable Geo. R. Harvey, Judge, by
overcharged it on the deliveries of said tars mentioned in the Blossom & Company, plaintiff, vs. Manila Gas Corporation,
sum of at least P10,000, all in violation of the rights of the defendant, being civil case No. 25352, of said court, for the
plaintiff under its said contract with the defendant." same cause of action as that set forth in the complaint herein,
said plaintiff recovered judgment upon the merits thereof,
That on January 31, 1926, and pursuant to Exhibit C, plaintiff against said defendant, decreeing a breach of the contract
notified the defendant in writing that commencing with the sued upon herein, and awarding damages therefor in the sum
month of August, 1926, it desired to take delivery of 50 per of P26, 119.08 with legal interest from November 23, 1923,
cent of defendant's coal tar production for that month, and and costs of suit, which judgment was upon appeal affirmed
that on November 1, 1926, it desired to take the entire output by the Supreme Court of the Philippine Islands, in case G.R.
of defendant's coal gas tar, but that the defendant refused No. 24777 of said court, on the 3d day of March, 1926, and
and still refuses to make such deliveries, unless plaintiff would reported in volume 48 Philippine Reports at page 848," and it
take all of its water gas tar production with the desired prays that plaintiff's complaint be dismissed, with costs.
quantity of coal gas tar, which refusal was a plain violation of
the contract. That on January 29, 1927, and in accord with After the evidence was taken, the referee made an exhaustive
Exhibit C, plaintiff notified the defendant in writing that within report of sixty-six pages in which he found that the plaintiff
ninety days after the initial delivery to it of its total coal gas was entitled to P56,901.53 damages, with legal interest from
tar production, or in February, 1927, it would require 50 per the date of filing of the complaint, to which both parties filed
cent of its total water gas tar production, and that in April, numerous exceptions.
1927, it would require the total output of the defendant of
both coal and water gas tars, and that it refused to make In its decision the court says:
either of such deliveries.
"Incidental references have been made to the referee's report.
It is then alleged: It was admirably prepared. Leaving aside the question of
damages and the facts upon which the referee assessed
"XIV. That as shown by the foregoing allegations of this them, the facts are not in dispute at least not in serious
complaint, it is apparent that notwithstanding the plaintiff in dispute. They appear in the documentary evidence and this
this case has at all times faithfully performed all the terms decision is based upon documents introduced into evidence
and conditions of said contract, Exhibit C, on its part to be by plaintiff. If I could have agreed with the referee in respect
performed, and has at all times and is now ready, able and to the question of law, I should have approved his report in
willing to accept and pay for the deliveries of said coal and toto. If defendant is liable for the damages accruing from
water gas tar required by said contract and the notices given November 23, 1923, the date the first complaint was filed, to
pursuant thereto, the said defendant, the Manila Gas April 1st, 1926, the date of resumption of relations; and if
Corporation, does not intent to comply with its said contract, defendant, after such resumption of relations, again violated
Exhibit C, and deliver to the plaintiff at the times and under the contract, the damages assessed by the referee, are, to my
the terms and conditions stated therein the quantities of coal way of thinking, as fair as could be estimated. He went to
and water gas tars required by said contract, and the several tremendous pains in figuring out the details upon which he
notices given pursuant thereto, and that it is useless for the based his decision. Unfortunately, I cannot agree with his
plaintiff to insist further upon its performance of the said legal conclusions and the report is set aside except wherein
contract, and for that reason the only feasible course for the specifically approved.
plaintiff to pursue is to ask the court for the rescission of said
contract and for the full damages which the plaintiff has "It is unnecessary to resolve specifically the many exceptions
suffered from September, 1923, and will suffer for the made by both parties to the referee's report. It would take
remainder of said contract by reason of the defendant's failure much time to do so. Much time has already been spent in
and refusal to perform the same, and the plaintiff has no preparing this decision. Since both parties have informed me
notified the said defendant." that in case of adverse judgment, an appeal would be taken, I
desire to conclude the case so that delay will be avoided.
That since September, 1923, by reason of the bad faith of the
defendant, the plaintiff has been damages in the sum of "Let judgment be entered awarding damages to plaintiff in the
P300,000, for which it prays a corresponding judgment, and sum of P2,219.60, with costs."
that the contract, Exhibit C, be rescinded and declared void
and without force and effect. From which plaintiff only appealed and assigns twenty-four
different errors, of which the following are material to this
After the filing and overruling of its demurrer, the defendant opinion:
filed an answer in the nature of a general and specific denial,
and on April 10, 1928, and upon stipulation of the parties, the "I. The trial court erred in holding that this suit is so far
court appointed W. W. Larkin referee, "to take the evidence as the damages from November, 1923, to March 31, 1926, are
and, upon completion of the trial, to report his findings of law concerned, is res adjudicata.
and fact to the court."
"II. The trial court erred in holding that the defendant
July 18, 1928, the defendant filed an amended answer in repudiated the contract in question as a whole, and that the
which it alleged as an affirmative defense, first, that the plaintiff when it brought its first suit to collect damages had
complaint does not state facts sufficient to constitute a cause already elected and consented to the dissolution of the

contract, and its choice once made, being final, it was Overcharges on deliveries (Exhibit Ref. 23) 2,219.60
estopped to claim that the contract was alive when that suit
was brought. __________
xxx xxx xxx or a total of 56,901.53
"VII. The trial court erred in refusing to sustain plaintiff's with interest, and in not awarding to the plaintiff as damages
third exception to the legal interpretation placed on the in this case the sum of P319,253.40, with legal interest
contract in this case by the referee with reference to quantity thereon from the date of filing the complaint in this case, in
of tars and his conclusion with respect to the terms thereof the manner and form computed by it, and in awarding
that: damages to the plaintiff for the sum of only P2,219.60, with
costs."
"'1. Plaintiff must take and defendant must deliver either
the minimum or maximum quantity of water gas tar and not xxx xxx xxx
any quantity from the minimum to the maximum and/or
DECISION
"'2. Plaintiff must take either the minimum and any
quantity up to fifty per cent of entire output of coal gas tar. JOHNS, J p:
"'3. With ninety days' notice by plaintiff to defendant the In this action plaintiff seeks to recover damages from the
former must take and the latter must deliver total output of defendant which it claims to have sustained after September,
both tars, except such as might be needed by defendant for 1923, arising from, and growing out of, its original contract of
use in and about its plant and not any quantity from the September 10, 1918, as modified on January 1, 1919, to
minimum up to total output of both tars.' (See page 47, continue for a period of ten years from that date.
Referee's report.)
In paragraph VIII of its complaint, plaintiff alleges that about
"And in holding that the option contained in said contract, the last part of July, 1920, the defendant "willfully and
taking into consideration the purpose of both parties in deliberately breached its said contract," and that it "flatly
entering into the contract, was as claimed by defendant: all refused to make any deliveries under said contract, and finally
the water gas tar and 50 per cent of the coal gas tar upon on November 23, 1923," it was force to commence action in
immediate notice, and all tars upon ninety days' notice. the Court of First Instance against the defendant, known as
case No. 25352, to recover the damages which it had then
"VIII. The trial court erred in refusing to sustain plaintiff's sustained by reason of such flagrant violation of said contract
fourth exception to the finding and conclusion of the referee on the part of the defendant, in which judgment was rendered
that from the correspondence between the parties, it was in favor of the plaintiff and against the defendant for
apparent that plaintiff did not make a right use of its option, P26,119.08, as damages "suffered by his plaintiff by the
and that the letter of June 25, 1926, and the subsequent defendant's breach of said contract from July, 1920, up to and
demands, with exception of the letter of July 31, 1926, were including September, 1923, with legal interest thereon from
not made in pursuance to the terms of the contract, and that November 23, 1923, and for the costs," in which the court
defendant had no liability in refusing to comply therewith, and refused to order the defendant to resume the delivery of the
in allowing plaintiff damages only for the failure of the coal and water gas tar to the plaintiff, in accord with said
defendant to deliver quantities shown in Exhibits Ref. 21 and contract, but left it with its remedy for damages against the
22. (See pages 51, 52, Referee's report.) defendant for any subsequent breaches of the contract. A
copy of that judgment, which was later affirmed by this court,
"IX. The trial court erred in finding and holding that the at attached to, marked Exhibit G, and made a part of, the
demands of plaintiff for additional tars under its contract with complaint in this action.
the defendant were extravagant and not made in good faith,
and that when it wrote to defendant that it desired maximum In their respective briefs, opposing counsel have much to say
quantities of coal gas tars and only minimum of water gas about the purpose and intent of that judgment, and it is
tars, but with the reservation of going back to minimum vigorously asserted that it was never intended that it should
quantities of both at any time it chose, it announced its be or become a bar to another action by the plaintiff to
intention of breaching the contract, the defendant was under recover any damages it may have sustained after September,
no obligation to deliver maximum quantities of either tars, 1923, during the remainder of the ten-year period of that
and since this was the efficient cause of the failure of contract. Be that as it may, it must be conceded that the
defendant to deliver or plaintiff to accept tars, the blame is question as to what would be the legal force and effect of that
attributable to plaintiff, and it cannot recover for a rescission. judgment in that case was never presented to, or decided by,
the lower court or this court. In the very nature of things,
xxx xxx xxx neither court in that case would have the power to pass upon
or decide the legal force and effect of its own judgment, for
"XXIII. The trial court erred in refusing to sustain plaintiff's the simple reason that it would be premature and outside of
seventeenth exception to the finding and conclusion of the the issues of any pleading, and could not be raised or
referee that the plaintiff is entitled to recover from the presented until after the judgment became final, and then
defendant only the following sums: only by an appropriate plea, as in this case.
Water gas tar (Exhibit Ref. 21) P 38,134.60 Plaintiff specifically alleges that the defendant willfully and
deliberately breached the contract, and "flatly refused to
Coal gas tar (Exhibit Ref. 22) 16,547.33 make any deliveries under said contract," by reason of which

it was forced to and commenced its former action in which it "'(a) That upon trial of this cause judgment be rendered in
was awarded P26,119.08 damages against the defendant by favor of the plaintiff and against the defendant for the sum of
reason of its breach of the contract from July, 1920, to P124,848.70, with legal interests thereon from November 23,
September, 1923. 1923;
In the final analysis, plaintiff in this action seeks to recover "'(b) That the court specifically order the defendant to
damages growing out of, and arising from, other and different resume the delivery of the coal and water gas tar to the
breaches of that same contract after November, 1923, for the plaintiff under the terms of the said contract Exhibit A of this
remainder of the ten-year period, and the question is thus complaint.'"
squarely presented as to whether the rendition of the former
judgment is a bar to the right of the plaintiff to recover In the final analysis, plaintiff must stand or fall on its own
damages from the after September, 1923, arising from, and pleadings, and tested by that rule, it must be admitted that
growing out of, breaches of the original contract of September the plaintiff's original cause of action, in which it recovered
10, 1918, as modified on January 1, 1919. That is to say, judgment for damages, was founded on the ten-year contract,
whether the plaintiff, in a former action, having recovered and that the damages which it then recovered were recovered
judgment for the damages which it sustained by reason of a for a breach of that contract.
breach of its contract by the defendant up to September,
1923, can now in this action recover damages it may have Both actions are founded on one and the same contract. By
sustained in this action recover damages it may have the terms of the original contract of September 10, 1918, the
sustained after September, 1923, arising from, and growing defendant was to sell and the plaintiff was to purchase three
out of, a breach of the same contract, upon and for which it tons of water gas tar per month from September to January 1,
recovered its judgment in the former action. 1919, and twenty tons of water gas tar per after from January
1, 1919, one-half ton of coal gas tar per month from
In the former action in which the judgment was rendered, it is September to January 1, 1919, and six tons of coal gas tar per
alleged in the complaint: month after January 1, 1919. That from and after January 1,
1919, plaintiff would take at least the quantities specified in
"'7. That about the last part of July or the first part of the contract of September 10, 1918, and that at its option, it
August, 1920, the Manila Gas Corporation, the defendant would have the right to take the total output of water gas tar
herein, without any cause ceased delivering coal and water of defendant's plant and 50 per cent of the gross output of its
gas tar to the plaintiff herein; and that from that time up to coal gas tar, and upon giving ninety days' notice, it would
the present date, the plaintiff corporation, Blossom & have the right to the entire output of coal gas tar, except such
Company, has frequently and urgently demanded of the as the defendant might need for its own use. That is to say,
defendant, the Manila Gas Corporation, that it comply with its the contract provided for the delivery to the plaintiff from
aforesaid contract Exhibit A by continuing to deliver coal and month to month of the specified amounts of the different tars
water gas tar to this plaintiff - but that the said defendant has as ordered and requested by the plaintiff. In other words,
refused, and still refused, to deliver to the plaintiff any coal under plaintiff's own theory, the defendant was to make
and water gas tar whatsoever under the said contract Exhibit deliveries from month to month of the tars during the period
A, since the said month of July, 1920. of ten years, and it is alleged in both complaints that the
defendant broke its contract, and in bad faith refused to make
xxx xxx xxx any more deliveries.
"'9. That owing to the bad faith of the said Manila Gas In 34 Corpus Juris, p. 839, it is said:
Corporation, defendant herein, in not living up to its said
contract Exhibit A, made with this plaintiff, and refusing now "As a general rule a contract to do several things at several
to carry out the terms of the same, by delivering to this times is divisible in its nature, so as to authorize successive
plaintiff the coal and water gas tar mentioned in the said actions; and a judgment recovered for a single breach of a
Exhibit A, has caused to this plaintiff great and irreparable continuing contract or covenant is no bar to a suit for a
damages amounting to the sum total of one hundred twenty- subsequent breach thereof. But where the covenant or
four thousand eight hundred forty-eight pesos and seventy contract is entire, and the breach total, there can be only
centavos (P124,848.70); and that the said defendant action, and the plaintiff must therein recover all his damages."
corporation has refused, and still refuses, to pay to this
plaintiff the whole or any part of the aforesaid sum. In the case of Roehm vs. Horst, 178 U.S., 1; 44 Law. ed., 953,
that court said:
"'10. That the said contract Exhibit A, was to be in force
until January 1, 1929, that it to say, for ten (10) years counted "An unqualified and positive refusal to perform a contract,
from January 1, 1919; and that, unless the defendant again though the performance thereof is not yet due, may, if the
commence to furnish and supply this plaintiff with coal and renunciation goes to the whole contract, be treated as a
water gas tar, as provided for in the said contract Exhibit A, complete breach which will entitled the injured party to bring
the damages already suffered by this plaintiff will continually his action at once."
increase and become larger and larger in the course of years
preceding the termination of the said contract on January 1, 15 Ruling Case Law, 966, 967, sec. 441, says:
1929.'"
"Similarly if there is a breach by the vendor of a contract for
In that action plaintiff prays for judgment against the the sale of goods to be delivered and paid for in installments,
defendant: and the vendee maintains an action therefor and recovers
damages, he cannot maintain a subsequent action to recover
for the failure to deliver later installments."

In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. the other growing out of the entire contract, and was a bar to
A. (N.S.), 1042, the syllabus says: a subsequent suit brought by the purchaser to recover for
other breaches of the same warranty in relation to deliveries
"Upon refusal, by the seller, after partial performance, longer made in previous months."
to comply with his contract to sell and deliver a quantity of
articles in installments, the buyer cannot keep the contract in On page 415 of the opinion, the court says:
force and maintain actions for breaches as they occur, but
must recover all his damages in one suit." "When the contract was ended, the claims of each party for
alleged breaches and damages therefor constituted an
And on page 1044 of its opinion, the court says: indivisible demand; and when the same, or any part of the
same, was pleaded, litigation had, and final judgment
"The learned counsel for the plaintiff contends that the former rendered, such suit and judgment constitute a bar to
judgment did not constitute a bar to the present action, but subsequent demands which were or might have been
that the plaintiff had the right to elect to waive or disregard litigated. (Baird vs. U.S., 96 U.S., 430; 24 L. ed., 703.)"
the breach, keep the contract in force, and maintain
successive actions for damages from time to time as the In Watts vs. Weston (238 Federal, 149), Circuit Court of
installments of goods were to be delivered, however Appeals, Second Circuit, the syllabus says:
numerous these actions for damages from time to time as the
installments of goods were to be delivered, however "1. JUDGMENT 593 JUDGMENT AS BAR MATTERS
numerous these actions might be. It is said that this CONCLUDED. Where a continuing contract was terminated
contention is supported in reason and justice, and has the by the absolute refusal of the party whose action was
sanction of authority at least in other jurisdictions. We do not necessary to further perform, a claim for damages on account
think that the contention can be maintained. There is not, as it of the breach constituted an indivisible demand, and when the
seems to us, any judicial authority in this state that gives it same of any part of the same was pleaded, litigated, and final
any substantial support. On the contrary, we think that the judgment rendered, such suit and judgment constitute a bar
cases, so far as we have been able to examine them, are all to subsequent demands which were or might have been
the other way, and are to the effect that, inasmuch as there litigated therein."
was a total breach of the contract by the defendant's refusal
to deliver, the plaintiff cannot split up his demand and And on page 150 of the opinion, the court says:
maintain successive actions, but must either recover all his
damages in the first suit or wait until the contract matured or "It is enough to show the lack of merit in the present
the time for the delivery of all the goods had arrived. In other contention to point out as an inexorable rule of law that, when
words, there can be but one action for damages for a total Knevals' contract was discharged by his total repudiation
breach of an entire contract to deliver goods, and the fact that thereof, Watts' claims for breaches and damages therefor
they were to be delivered in installment from time to time 'constituted an indivisible demand, and when the same, or
does not change the general rule." any part of the same, was pleaded, litigation had and final
judgment rendered, such suit and judgment constitute a bar
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. to subsequent demands which were or might have been
(109 Federal, 411), of the United States Circuit Court of litigated.' (Bucki, etc., Co. vs. Atlantic, etc., Co., 109 Fed. at
Appeals for the Fifth Circuit, is very similar. page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed.,
344; 37 C. C. A., 96.)
The syllabus says:
"The rule is usually applied in cases of alleged or supposed
"1. CONTRACTS CONSTRUCTION ENTIRE successive breaches, and consequently severable demands
CONTRACT. A contract was made for the sale of a large for damages; but if the contract has been discharged by
quantity of logs to be delivered in monthly installments during breach, if suit for damages is all that is left, the rule is
a period of eight years, payments to be made also in applicable, and every demand arising from that contract and
installments at times having relations to the deliveries. It possessed by any given plaintiff must be presented (at least
contained stipulations as to such payments, and guaranties as as against any given defendant) in one action; what the
to the average size of the logs to be delivered in each plaintiff does not advance he foregoes by conclusive
installment. Held, that it was an entire contract, and not a presumption."
number of separate and independent agreements for the sale
of the quantity to be delivered and paid for each month, In Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal.,
although there might be breaches of the minor stipulations 42), at page 428, the court said:
and warranties with reference thereto which would warrant
suits without a termination of the contract. "In Fish vs. Folley, 6 Hill (N.Y.), 54, it was held, in accord with
the rule we have discussed, that, where the defendant had
"2. JUDGMENTS MATTERS CONCLUDED ACTION FOR covenanted that plaintiff should have a continual supply of
BREACH OF INDIVISIBLE CONTRACT. The seller declared the water for his mill from a dam, and subsequently totally failed
contract terminated for alleged breaches by the purchaser, to perform for nine years, and plaintiff brought an action for
and brought suit for general and special damages, the latter the breach and recovered damages sustained by him to that
covering payments due for installment of logs delivered. By time, the judgment was a bar to a second action arising from
way of set-off and recoupment against this demand, the subsequent failure to perform, on the theory that, although
purchaser pleaded breaches of the warranty as to the size of the covenant was a continuing one in one sense, it was an
the logs delivered during the months for which payment has entire contract, and a total breach put an end to it, and gave
not been made. Held, that the judgment is such action was plaintiff the right to sue for an equivalent in damages.
conclusive as to all claims or demands of either party against

"In such a case it is no warrant for a second action that the In response to which on March 31, 1926, the defendant wrote
party may not be able to actually prove in the first action all this letter to the plaintiff:
the items of the demand, or that all the damage may not then
have been actually suffered. He is bound to prove in the first "In reply to your letter of March 26th, 1926, in regard to tar,
action not only such damage as has been actually suffered, we beg to advise you that we are prepared to furnish the
but also such prospective damage by reason of the breach as minimum quantities of coal and water gas tars as per your
he may be legally entitled to, for the judgment he recovers in letter, viz: twenty tons of water gas tar and six tons of coal
such action will be a conclusive adjudication as to the total gas tar. The price figured on present costs of raw materials is
damage on account of the breach." P39.01 (Thirty-nine and 01/100 Pesos) per ton of water gas
and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal tar.
It will thus be seen that, where there is a complete and total
breach of a continuous contract for a term of years, the "We shall expect you to take delivery and pay for the above
recovery of a judgment for damages by reason of the breach amount of tars at our factory on or before April 7th prox.
is a bar to another action on the same contract for and on
account of the continuous breach. "Thereafter we shall be ready to furnish equal amounts on the
first of each month. Kindly make your arrangements
In the final analysis, there is no real dispute about any accordingly."
material fact, and the important and decisive question is the
legal construction of the pleadings in the former case and in On January 29, 1927, the plaintiff wrote the defendant that:
this case, and of the contract between the plaintiff and the
defendant of January 1, 1920. "On July 31st last, we made demand upon you, under the
terms of our tar contract, for 50 per cent of your total coal tar
The complaint in the former case specifically alleges that the production for that month and also served notice on you that
defendant "has refused, and still refuses, to deliver to the beginning 90 days from August 1st we would require your
plaintiff any coal and water gas tar whatsoever under the said total output of coal tar monthly; this in addition to the 20 tons
contract Exhibit A, since the said month of July, 1920." "That of water gas tar provided for in the contract to be taken
owing to the bad faith of the said Manila Gas Corporation, monthly.
defendant herein, in not living up to its said contract Exhibit A,
made with this plaintiff, and refusing now to carry out the xxx xxx xxx
terms of the same." That is a specific allegation not only of a
breach of the contract since the month of July, 1920, but of "We are here again calling on you for your total output of coal
the bad faith of the defendant in its continuous refusal to tar immediately and the regular minimum monthly quantity of
make deliveries of any coal and water gas tar. That amended water gas tar. In this connection we desire to advise you that
complaint was filed on July 11, 1924, or four years after the within 90 days of your initial delivery to us to your total coal
alleged bad faith in breaking the contract. tar output we will require 50 per cent of your total water gas
tar output, and, further, that two months thereafter we will
Having recovered damages against it, covering a period of require your total output of both tars."
four years, upon the theory that the defendant broke the
contract, and in bad faith refused to make deliveries of either February 2, 1927, the defendant wrote the plaintiff:
of the tars, how can the plaintiff now claim and assert that the
contract is still in force and effect? In the instant case the "Replying to your letter of Jan. 29, we would say that we have
plaintiff alleges and relies upon the ten-year contract of already returned to you the check enclosed therewith. As we
January 1, 1920, which in bad faith was broken by the have repeatedly informed you we disagree with you as to the
defendant. If the contract was then broken, how can it be construction of your contract and insist that you take the
enforced in this action? whole output of both tars if you wish to secure the whole of
the coal tar.
It is admitted that the defendant never made any deliveries of
any tar from July, 1920, to April, 1926. Also that it made nine "With regard to your threat of further suits we presume that
deliveries to plaintiff of the minimum quantities of coal and you will act as advised. If you make it necessary we shall do
water gas tar from April 7, 1926, to January 5, 1927. the same."
Plaintiff contends that such deliveries were made under and in From an analysis of these letters if clearly appears that the
continuation of the old contract. plaintiff then sought to rely upon and enforce the contract of
January 1, 1920, and that defendant denied plaintiff's
March 26, 1926, after the decision of this court affirming the construction of the contract, and insisted "that you take the
judgment in the original action, plaintiff wrote the defendant; whole output of both tars if you wish to secure the whole of
the coal tar."
". . . It is our desire to take deliveries of at least the minimum
quantities set forth therein and shall appreciate to have you February 28, 1927, the plaintiff wrote the defendant:
advise us how soon you will be in a position to make
deliveries; . . . "In view of your numerous violations of and repeated refusal
and failure to comply with the terms and provisions of our
". . . In view of the fact that you have only effected settlement contract dated January 30-31, 1919, for the delivery to us of
up to November 23, 1923, please inform us what adjustment water and coal gas tars, etc., we will commence action,"
you are willing to make for the period of time that has since which it did.
elapsed without your complying with the contract."

The record tends to show that the tars which the defendant November 18, 1932, on which date the appellant consigned
delivered after April 7, 1926, were not delivered under the old with the clerk of the lower court the sum of P6,000, at the
contract of January 1, 1920, and that at all times since July, disposal of the appellee.
1920, the defendant has consistently refused to make any
deliveries of any tars under that contract. DECISION
The referee found as a fact that plaintiff was entitled to IMPERIAL, J p:

P2,219.60 for and on account of overcharges which the
defendant made for the deliveries of fifty-four tons of coal gar This is an appeal taken by the defendant, the Pure Cane
tar, and one hundred eighty tons of water gas tar after April, Molasses Co. (Philippine Islands), Inc., from the decision of the
1926, and upon that point the lower court says: Court of First Instance of Iloilo, the dispositive part of which
reads as follows:
"The fourth charge that plaintiff makes is meritorious. The
price was to be fixed on the basis of raw materials. The "In view of the foregoing considerations let judgment be
charge for deliveries during 1926 were too high. In this I agree entered:
with entirely with the referee and adopt his findings of fact
and calculations. (See Referee's report, p. 83). The referee "(a) Holding that the contract Exhibit A cannot be
awarded for overcharge during the period aforesaid, the sum cancelled, and that the sum of six thousand pesos therein
of P2,219.60. The defendant was trying to discourage plaintiff mentioned is but a guaranty or bond, payment of which does
from buying tars and made the price of raw material appear not entitle the defendant to cancel the contract;
as high as possible."
"(b) Holding likewise, with a view to avoiding further
That finding is sustained upon the theory that the defendant litigation, that paragraphs II and III of the contract Exhibit A
broke its contract which it made with the plaintiff for the sale bind the plaintiff to sell and the defendant to buy fifty per cent
and delivery of the tars on and after April, 1926. of all the molasses produced by the former besides the
molasses pertaining to the planters under milling contracts,
After careful study of the many important questions presented become the property of the Asturias Sugar Central
on this appeal in the exhaustive brief of the appellant, we are Incorporated, and thus subject to its free disposal; and that
clearly of the opinion that, as found by the lower court, the the terms of the contract Exhibit A express this, and nothing
plea of res judicata must be sustained. The judgment of the else:
lower court is affirmed.
"(c) Without special pronouncement as to costs.
It is so ordered, with costs against the appellant.
"It is so ordered."
EN BANC
The plaintiff-appellee, the Asturias Sugar Central, Inc., brought
[G.R. No. 36026A. November 16, 1932.] this action to amend paragraphs II and III of a contract for the
sale of molasses entered into between it and the appellant,
ASTURIAS SUGAR CENTRAL, INC., plaintiff-appellee, vs. THE couched in the following terms:
PURE CANE MOLASSES CO., defendant-appellant.
"MANILA, 21st, March 1929
Greenbaum & Opisso for appellant.
"ASTURIAS SUGAR CENTRAL, INC.
Felipe Ysmael for appellee.
"San Juan, Dumalag, Capiz
SYLLABUS
"Panay
1. CONTRACT; OPTION TO CANCEL. Upon the facts of
record, it is held that the appellant was given option to cancel "DEAR SIRS: I herewith confirm having bought from you
the contract of sale of molasses upon payment of P6,000. on the following conditions:
2. ID.; INTERPRETATION. Pursuant to section 293 of "The total production of Molasses from Central Asturias for the
the Code of Civil Procedure and article 1288 of the Civil Code, period of 5 (five) consecutive milling seasons, beginning with
any ambiguity in the contract as to the question at issue, the the milling season 1929-'30.
terms thereof being susceptible of different interpretations,
"QUANTITY: The yearly quantity of Molasses is estimated
must be interpreted in favor of the herein appellant, not only
at 200,000 Gallons to 400,000 Gallons. This estimate is,
because the option to cancel was created for its benefit but
however, not binding for any of the parties as we agree to
also because the appellee, through its manager, was
receive any quantity you may produce, and you agree to
responsible for the ambiguity as to the security required,
deliver us all Molasses produced. You have, however, the right
which is sometimes treated as such security, sometimes as
to reserve for your own use a quantity of Molasses not
indemnity for liquidated damages and sometimes as
exceeding 15 per cent of the yearly production, either for
compensation in case of cancellation.
burning for fuel, fertilizing or experiments. It is understood
3. ID.; ID.; AMENDMENT TO DISPOSITIVE PART OF that you do not sell any Molasses to third parties.
DECISION. The dispositive part of the main decision
rendered in this case was amended so as to show that the
cancellation of the contract in question would take effect from

"Quality: The sellers oblige themselves to deliver the Molasses "DELIVERY. Delivery will take place during and after
as produced in the central, undiluted and in sound, each milling season and must commence before the storage
merchantable condition. tank at the Central is filled to capacity. If the molasses storage
tank is filled to capacity as a result of the failure to take
"Price: The price is P0.04 (Four Centavos) per gallon of delivery of one-half of the total production of molasses as the
Molasses delivered into our tankcars in the yard of the central. same is produced and an overflow occurs we bind ourselves
to pay for the quantity lost by such overflow at the contractual
"Payment: The payment takes place in cash on rate, in so far as such overflow does not exceed the difference
presentation of your invoice. between one-half the total production at the time of such
overflow and the total quantity delivered at that time,
"Delivery: Delivery will take place during and after provided that one-half the storage capacity of said tank is at
each milling season and must commence before the storage all times reserved for the Central's share of the molasses as
tank at the Central is filled to capacity, so that it is specified in paragraph two hereof."
unavoidable to throw Molasses away, we bind ourselves to
pay any such quantity thrown away at full contract price only. But on January 14, 1931 the appellant filed a supplemental
answer alleging that the appellee had agreed to give it the
"In case the Central should stop its operations during the option to cancel the molasses contract upon payment of the
period of the contract, we have no claim whatsoever against sum of P6,000, which was the bond required by said appellee,
your company. and the appellant prayed that the contract be cancelled by
the court and that the appellee be compelled to accept the
"The undersigned has the option to transfer this contract to amount of P6,000 that had been deposited with the clerk of
the Pure Cane Molasses Company (Philippine Islands), which the court.
firm probably will be incorporated in the Philippines within a
few months. The said supplemental answer was substituted for the
amended answer, the latter being incompatible with the
"Yours faithfully, former, and the remedy prayed for being a new cross
complaint which was likewise substituted for that originally
"(Sgd.) T. NIELSEN set up in the aforesaid amended answer.
"AGREED: Prior to the dates hereinafter mentioned, T. Nielsen,

predecessor in interest to the appellant, interviewed Manuel
"Provided that you deposit P6,000 or its equivalent in Bond to
G. Garcia, treasurer and acting manager of the appellee, at
be deposited in the Bank of P.I., as guarantee of proper
the latter's office in Dumalag, Capiz, and they agreed verbally
fulfillment of this contract.
that the Asturias Sugar Central, Inc., would sell to T. Nielsen
the molasses produced by that central during five consecutive
milling seasons, beginning with that of 1929-1930, at the rate
of P0.04 per gallon, and under other conditions which had
"(Sgd.) MANUEL GARCIA
been stipulated.
"Treasurer and Acting Manager"
On February 12, 1929, Nielsen wrote the following letter,
Exhibit 3, to the appellee:
This document was marked Exhibit A for identification
purposes. In its amended answer filed by way of cross-
"MANILA, 12th February 1929
complaint, the appellant alleged that it was agreeable to
amend paragraphs II, III and VII of the contract referred to, in
the sense that only 50 per cent of the central's total output of
molasses would be considered sold, and prayed that judgment
"Dumalag, Capiz
be entered, inserting the following in place of the said three
paragraphs: "Panay
"Fifty per cent of the total of molasses produced by the "DEAR SIRS: I herewith beg to confirm my cable to the
Central Asturias, which is the share of said Central, for the 8th inst. reading as follows:
period of 5 (five) consecutive milling seasons beginning with
the milling season 1929 and 1930. "'Offer firm one week total production Molasses
"QUANTITY. The yearly quantity of molasses is estimated "'5 years contract 4 centavos per Gallon ex Central'
at 200,000 Gallons to 400,000 Gallons. This estimate is,
however, not binding on either of the parties, as we agree to and thank you for your reply:
receive one-half of the total quantity produced by your
Central, as shown by its laboratory reports and you likewise "'Recibido telegrama queda aceptada su oferta
agree to deliver one half of the total quantity produced. You
have, however, the right to reserve for your own use a "'cuatro centimos galon melaza puesto vagon
quantity of Molasses not exceeding 15 per cent of the yearly
production, either for burning for fuel, fertilizing or "'ferrocarril en central por cinco zafras
experiments."
"'empezando proxima zafra previa garantia cumplimiento

"'a satisfaccion central conteste si acepta.' On March 12, 1929, the appellee's manager wrote Nielsen the
following letter, Exhibit 5:
to which I replied 'Accept'.
"March 12, 1929
"Referring to the above I herewith have much pleasure to
confirm to have bought from you the total production of "Mr. T. NIELSEN
Molasses from your Central during the period of 5 milling
seasons, beginning with next milling season, at the price of 4 "Representative Dunbar Molasses
(four) centavos per Gallon delivered into our tankcars at the
Central. Corp., N.Y. and United Molasses
"I should be obliged to have your counter-confirmation in due Co. Ltd., London
course and also to have your information what guarantee you
wish us to give you for the fulfillment of the contract. "DEAR SIR: On the 15th of February of this year we sent
you a letter, a copy of which is enclosed, which you have not
"It is the intention to float a Company in the Philippine Islands, to this date answered, with reference to our proposed contract
as a subsidiary Company of the United Molasses Co., Ltd., to sell you, in behalf of those whom you represent, all our
Bush House, Aldwych, London. output of molasses, with the exception of what we may need
for our own use, and in that letter we specified our conditions.
"Your faithfully,
"We await your early reply in order to perfect the contract.
"(Sgd.) T. NIELSEN"
"Yours truly,
The appellee replied to said letter, Exhibit 4, as follows:
"Feb. 15, 1929
"MANUEL GARCIA
"Mr. D. T. NIELSEN
"Manila
On March 22nd of the same year, Nielsen addressed another
"DEAR SIR: Yours of the 12th instant to hand, and with letter, copy of which is marked Exhibit 8, to the appellee,
reference to the contract by telegram we would say that it is enclosing a written contract of sale of the molasses, asking
confirmed to the effect that we shall sell you the molasses that the same be signed by its manager. The letter reads as
produced by the Central at four centavos per gallon placed in follows:
tank-cars at the Central, with the understanding that if we
need any molasses in case we run out of bagasse we shall be "MANILA, 22nd March 1929
free to use a certain amount; this only in case we run out of
bagasse and it should become necessary to use a small "ASTURIAS SUGAR CENTRAL, INC.
amount of molasses.
"San Juan, Dumalag, Capiz
"With regard to the surety to secure bond your performance of
the contract relative to the purchase of our output of "Panay
molasses, we require a bond of P6,000 to answer for your
failure to comply with the terms thereof; in other words, in "DEAR SIRS: Herewith I beg to thank you for your favour
case you may later wish to have said contract cancelled. This of the 12th inst. with copy of your letter of the 15th of
bond may be in cash, or on the undertaking of a solvent firm. February and I now have much pleasure to inform you that I
have asked the Hongkong & Shanghai Banking Corporation to
"Upon delivery of the molasses you will make payment within open a credit in your name for an amount of P6,000, as a
20 days after each shipment. guarantee of our proper fulfillment of the contract.
"With the understanding that this is what we have agreed "Enclosed I beg to hand you a contract and in case you agree
upon, we hereby confirm our contract at FOUR CENTAVOS A to this kindly sign and return the copy to me. In case there are
GALLON placed in tankcars for five milling seasons beginning any points which you wish changed, kindly let me know.
with the next, 1929-1930, to be delivered at the rate of our
production, and if for any reason the Central ceases to "Furthermore I beg to state, that we agree to purchase from
operate, the contract shall be cancelled and the Central shall you any Molasses you have left over from the present milling
not be liable for breach of contract. season at the same price, provided that our tank installation
at Iloilo will be ready before your next milling season starts.
"Yours truly,
"I shall be obliged to have your information as to the quantity
"ASTURIAS SUGAR CENTRAL, INC. of Molasses you expect to produce next milling season and
also when this approximately will start.
"MANUEL GARCIA
"Yours very truly,
"T. NIELSEN

"979, Muelle de la Industria, Manila." "Kindly let me know, when do you expect to commence the
following milling season.
The appellee replied to the foregoing letter, marked Exhibit 7,
as follows: "Yours very truly,
"March 26, 1929 "Encl. (Sgd.) T. NIELSEN"
"Mr. D. T. NIELSEN The contract Exhibit A, dated March 21, 1929, does not show
when it was signed by Garcia or on what date he wrote the
"979, Muelle de la Industria footnote thereof, which reads as follows:
"Manila "Provided that you deposit P6,000 or its equivalent in Bond to

be deposited in the Bank of P.I. as guarantee of proper
"DEAR SIR: We have received your letter of the 22nd fulfillment of this contract.
instant together with that of March 21st, which is the contract,
and we find the latter satisfactory, except that the amount of "ASTURIAS SUGAR CENTRAL, INC.
molasses which we reserve for our own use would not exceed
15 per cent of our yearly production instead of 10 per cent as "(Sgd.) MANUEL GARCIA
stated in the contract.
"We should like to insert in the contract that if you should wish
to cancel it before the expiration of the five year period, you But both things were presumably done after April 1, 1929,
would have to pay us P6,000 which is the bond we require, which is the date appearing on the letter accompanying the
and that this bond must be in force for five years, to answer contract, and after the latter had reached Garcia's hands,
for any damages which we might incur arising from your which must have been 3 or 4 days after April first. The
failure to comply with the terms of the contract. Upon appellant assigns the following errors in its brief:
insertion of these conditions, we will immediately sign the
contract and send it to you by return mail. "I. In granting reformation of the contract Exhibit A.
"Yours truly, "II. In not finding that defendant had the right to cancel
the contract Exhibit A upon payment of P6,000.
"III. In refusing to admit the testimony of the witness Burt
"(Sgd.) MANUEL GARCIA that Manuel Garcia spoke English well and could read and
understand the contract Exhibit A.
"IV. In refusing to admit Exhibit 9 as evidence."
And finally, on April 1, 1929 Nielsen wrote the letter Exhibit J
to the appellee enclosing the written contract as amended in We do not propose to consider all these assignments of error,
accordance with Garcia's suggestion, and that is Exhibit A. but only the second, which is decisive of the case upon its
The letter reads as follows: merits. If the appellant is entitled to the rescission or
cancellation of the contract, upon payment of P6,000 to the
"MANILA, 1st April 1929 appellee, it is obviously superfluous to discuss the points
raised in the other assignments of error.
To begin with there is no stipulation anywhere in Exhibit A
"San Juan, Dumalag, Capiz regarding the appellant's alleged option or right to cancel the
said contract of sale of molasses. It must therefore be
"Panay ascertained whether there is such a stipulation in some other
document, or if it has been established by other evidence.
"DEAR SIRS: I am in receipt of your favor of the 26th inst.
and now beg to return the contract, from which you will see In Exhibit 4, manager Garcia, among other things,
that I have inserted 15 per cent instead of 10 per cent. communicated to Nielsen, the following:
"With regard to the guarantee of 6,000 Pesos I trust that you "With regard to the surety bond to secure your performance of
have received information that the Hongkong & Shanghai the contract relative to the purchase of our output of
Banking Corporation guarantee this amount. molasses, we require a bond of P6,000 to answer for your
failure to comply with the terms thereof; in other words, in
"In this connection I would suggest, that we instead of this case you may later wish to have said contract cancelled. This
bond open a credit (irrevocable) by the Hongkong & bond may be in cash, or on the undertaking of a solvent firm."
Shanghai Banking Corporation for the estimated yearly
production, so that in case you for example estimate that the He also made use of the following words in one of the
next year's Molasses production will be 300,000 Gallons, we paragraphs of Exhibit 7:
open an irrevocable credit for 15,000 pesos, and payment
takes place from this credit on your presentation of your "We should like to insert in the contract that if you should wish
invoice at the Bank. I wish to state that we, of course, also are to cancel it before the expiration of the five year period, you
willing to give you the bond of 6,000 pesos as a guarantee of would have to pay us P6,000 which is the bond we require,
our proper fulfillment of the contract. and that this bond must be in force for five years, to answer

for any damages which we might incur arising from your right to cancel was established for its benefit, and because it
failure to comply with the terms of the contract. Upon was the appellee, through its manager, that gave rise to the
insertion of these conditions, we will immediately sign the ambiguity in considering the bond sometimes as a guarantee,
contract and send it to you by return mail." and at other times as indemnity for liquidated damages, and
lastly as compensation in case of rescission.
And in Exhibit 9, he also expressed himself in the following
terms: Having arrived at the conclusion that the appellant is entitled
to the cancellation of the contract, we deem it unnecessary to
"The bond which we require is not for the payment for the consider and resolve the other errors assigned by the
molasses to be delivered to Mr. Nielsen; it is for the purpose of appellant.
securing his compliance for five years with the terms of the
contract with this Central, so that in case of his failure to The judgment appealed from is reversed and the contract of
comply therewith we could take said sum of P6,000 by way of sale of molasses entered into between the parties as set forth
indemnity for damages." in Exhibit A is declared cancelled, and it is ordered that the
sum of P6,000 placed by the appellant in the hands of the
The last document mentioned is the subject matter of the clerk of the lower court be delivered to the appellee, with
fourth assignment of error, and although the trial court costs of this instance against the latter. So ordered.
rejected it, it ought to have been admitted at the reopening of
the trial which was granted, being material and competent. Villamor, Ostrand, Villa-Real and Vickers, JJ., concur.
In view of the foregoing quotations from letters written by the Separate Opinions
manager of the appellee, there can be no doubt that the
appellant was given the option to cancel the contract upon AVANCEA, C.J.:
payment of P6,000, which is the amount fixed for the bond to
guarantee the fulfillment of the contract. I vote for the confirmation of the appealed judgment.
The intention of the parties was to consider this stipulation as MALCOLM, J., dissenting:
an integral part of the contract of sale, and we have no doubt
in so holding. It cannot be disputed that Nielsen and the My opinion in this case can be briefly stated. The contract
appellant, his successor in interest, understood it so, and Exhibit A is controlling. Under the terms of that contract, the
believed they had the right to cancel the contract at any time plaintiff has made out no case for its reformation. As a
upon payment of the state sum of money. consequence, the complaint of the plaintiff cannot prosper.
For the same reason, the supplemental answer of the
It is no obstacle to the right of cancellation that the bond of defendant, asking that the plaintiff be ordered to accept the
P6,000 constituted a guarantee for the fulfillment of the whole sum of P6,000, and thereupon the contract be cancelled,
contract, because as the correspondence between the parties cannot prosper. The words added to the contract, "Agreed
shows, they, particularly the manager Garcia, referred to it provided that you deposit the sum of P6,000, or its equivalent,
sometimes as a guaranty or bond, and at other times as to be deposited at the Bank of the Philippine Islands, as a
indemnity for damages in case of breach of contract, thus guaranty for the proper fulfillment of this contract", furnish no
making it understood that it might be applied to indemnity the basis for cancellation. The complaint and the supplemental
appellee for breach of contract, or to compensate it in case answer being out of the way, it would be proper to give effect
the appellant chose to rescind the contract. to the cross-complaint of the defendant, whereby the
defendant expresses a willingness to have the contract
As we have said, it appears evident that the appellee granted modified so that the Asturias Sugar Central, Inc., will sell and
the appellant the right to cancel the contract upon payment of the Pure Cane Molasses Co. will buy annually, for the term of
the aforementioned sum of money, but if any doubt or the contract, only 50 per cent of the output of molasses of the
obscurity existed with regard to the intention of the parties Asturias Sugar Central, Inc., in accordance with the allegations
upon this point, the following legal provisions should govern: of plaintiff's complaint. Accordingly, I can not agree with the
majority when it holds that the contract may be rescinded,
"SEC. 293. Where intention of different parties to and am of the opinion that the cross-complaint should be
instrument not the same. When the terms of an agreement given effect. By so doing, the controversy will be amicably
have been intended in a different sense by the different and justly adjusted.
parties to it, that sense is to prevail against either party in
which he supposed the other understood it, and when ABAD SANTOS, J., dissenting:
different constructions of a provision are otherwise equally
proper, that is to be taken which is the most favorable to the I dissent. In my opinion the judgment appealed from should
party in whose favor the provision was made." (Code of Civil be reversed and both the complaint and the cross-complaint
Procedure.) dismissed.
"ART. 1288. Obscure terms of a contract shall not be so In legal contemplation, the terms of the contract involved in
construed as to favor the party who occasioned the obscurity." this case are clear; and it is just as untenable to hold that the
(Civil Code.) words "The total production of Molasses from Central Asturias"
really mean, as contended by the plaintiff, "All the share of
According to these provisions any obscurity in the contract the Asturias Sugar Central, Inc., in the total production of
regarding the point in question, where the terms are molasses which said Central can freely dispose", as to hold
susceptible of different interpretations, they should be that the stipulation "Provided that you deposit P6,000 or its
interpreted in favor of the herein appellant both because the equivalent in Bond to be deposited in the Bank of Philippine

Islands as guarantee of proper fulfillment of this contract", the cancellation of the contract. The view has been taken that
means, as contended by the defendant, that the contract may said cancellation was based solely on the tender of payment
be cancelled at the option of the defendant upon payment of or consignation of the amount of P6,000, which at the same
the sum of P6,000. "Cuando la disposicion contractual no es time constituted the appellant's bond. This was not the real
obscura, ni ambigua, ni equivoca, el significado natural de las ground of the rescission of the contract. Our holding that the
palabras segun el modo comun de entenderlas, determina la appellant was entitled to cancel the contract is based
voluntad de las partes. Quien ha pronunciado la formula clara principally on the fact that the appellant was given such
de una promesa, pretenderia en vano probar una voluntad option, as may be gathered from the correspondence between
distinta de la que significan las palabras: Cum in verbis nulla the parties which is reproduced literally in the decision. Said
ambigatas est, non es admittenda voluntatis quaestio. Y con conclusion was not made to rest on the note appearing at the
fundamento, puesto que al ser claro el sentido de las foot of the contract because, as plainly stated in the decision,
palabras, no se puede, sin atentar contra la razon y la logica, said note does not contain any express stipulation relative to
recurrir a conjeturas de voluntad que pueden cambiar su the option to cancel.
sentido comun o general. Es una verdad que los romanos
enunciaron solo en materia de actos de ultima voluntad, pero From what has been stated it follows the little or no
su aplicacion aun a los contratos es admitida de perfecto importance should be attached to the erroneous statement in
acuerdo por todos los tratadistas y de jurisprudencia the decision that the consideration for the option was
constante." (Giorgi, Teoria de las Obligaciones, vol. 4, p. 192.) consigned to the clerk of court, for all that was really made
was a tender of payment of the same amount by the
In order to justify its decision that the contract should be appellant. The cancellation of the contract, or the right
reformed as prayed in the plaintiff's complaint, the lower court thereto, not being thus entirely dependent on the tender of
had to resort to the negotiations leading to the formation of payment or consignation, it is evident that the confusion of
the subsequent written contract in question, and this court the issues will not avail to render ineffective the decision
rejected the view thus reached by the lower court. But to heretofore promulgated.
justify its own inference that the stipulation as to the filing of
the guaranty bond gives the defendant the right to cancel the We agree that the cancellation of the contract should take
contract, this court also resorted to the previous negotiations effect upon payment by the defendant-appellant to the
between the parties. The resort to such previous negotiations plaintiff-appellee of the stipulated amount, and the same view
was just as unwarranted in the one case as it was in the other. was embodied in the dispositive part of the decision to the
"All courts agree that if the parties have integrated their effect that the contract stands cancelled upon payment of the
agreement into a single written memorial, all prior aforesaid amount of money. We believe, however, that for a
negotiations and agreements in regard to the same subject clearer understanding of the decision the same should be
matter are excluded from consideration whether they were amended as prayed for.
oral or written." (Williston on Contracts, vol. II, p. 1224.)
The above disposes of the first two grounds of the motion.
Contracts are made not to be evaded and broken at the
convenience of one or the other of the parties thereto, but to The last ground is likewise untenable. We cannot interpret the
be faithfully performed. The parties in this case should be contract in any other sense than that already stated in the
made to live up to the plain terms of their agreement. decision. Having ordered the cancellation of the contract, we
see no reason to modify the same so as to give it further force
DECISION UPON MOTION FOR RECONSIDERATION and effect in accordance with the express terms of the
appealed judgment.
December 31, 1932
For the foregoing reasons, the motion for reconsideration is
Hull, J., concur. denied, and the dispositive part of our decision is amended in
the sense that the cancellation of the aforesaid contract shall
IMPERIAL, J p: take effect from November 18, 1932, the date when the sum
of P6,000 was consigned by the appellant to the clerk of the
The plaintiff and appellee moved for the reconsideration of trial court at the disposal of the appellee.
the decision rendered in this case on the following grounds:
FIRST DIVISION
"I. There was no valid and sufficient tender to herein
plaintiff and appellee of the sum of P6,000, and likewise this [G.R. No. 7180. March 30, 1912.]
sum of P6,000 was not consigned in court as the law requires
as conditions precedent before the alleged right of RAFAEL ENRIQUEZ ET AL., plaintiffs-appellants, vs. A. S.
cancellation can be exercised. WATSON & CO. LTD., defendant-appellee.
"II. The proviso found in the contract Exhibit A as to the Rohde & Wright, for appellants.
deposit of P6,000 'as guarantee of proper fulfillment' of the
contract did not give defendant-appellant the right to cancel W. A. Kincaid and Thomas L. Hartigan, for appellee.
the same.
SYLLABUS
"III. The contract, Exhibit A, should be reformed for it
does not express the real intention of the parties thereto." 1. LANDLORD AND TENANT; LEASE; CHANGES IN THE
FORM AND SUBSTANCE OF THE THING LEASED. The lessee
We are convinced, under the first ground, that the appellee under an 18-year lease had the right to make such changes as
misinterpreted the conclusions we had arrived at, sustaining the business established therein required, provided that

neither the value nor the solidity of the building was impaired. TRENT, J p:
Said lessee undertook to remove a thick masonry wall and
substitute therefor a reinforced concrete wall, which would This action was brought on April 12, 1911, by Rafael, Antonio,
add materially to the floor space, which he needed in his Trinidad, Cayetano, Rosario, Gertrudis, and Carmen Enriquez,
business, and at the same time strengthen the building and and Antonio Gascon (the latter being a minor, was
add materially to the value of the building. The lessors represented by his guardian ad litem), as owners and lessors
claimed the lease should be rescinded because the form and of the property Nos. 72, 74, and 76 Escolta, city of Manila,
substance of the leased premises had been changed. Held: against A. S. Watson & Company, Ltd., as lessee of said
Not such a change, under the circumstances, as to warrant property. The plaintiffs allege that on June 22, 1906, Rafael,
rescission of the lease. Carmen, Antonio, and Trinidad Enriquez and Antonio Gascon
executed to the defendant a contract of mortgage and lease
2. ID.; ID.; ID.; CIVIL CODE. The provisions of the Civil upon their participation in that property; that on January 19,
Code applicable to the case which prohibit a change of form or 1907, the other plaintiffs executed the same mortgage and
substance of the thing leased and obligate its return in the lease in favor of the defendant upon their interest in the same
same condition in which it was received, provide a general property; that the said contract of lease has been terminated
rule of law, and, like most general propositions, cannot be by the payment by the plaintiffs to the defendant of the
accepted without limitation and reservation under all principal and interest of the mortgage; that the said contract
conditions. They must be interpreted in the light of the growth of lease is null and of no effect by reason of the minority of
of civilization and varying conditions. the plaintiff Antonio Gascon, who is still a minor; that the
defendant, after June 22, 1906, made all the repairs necessary
3. ID.; ID.; ID.; SHORT TERM LEASE. A lessee under a to its business with the approval of the plaintiffs.
short term lease does not, however, receive the benefit of a
very liberal interpretation of these rules. If the lessor has The plaintiffs further allege that there exists in that building a
fitted up his premises for a certain purpose, such a lessee principal wall about one meter in thickness and five meters in
cannot make changes on the plea that they will be somewhat height, which extends from the front of the building on the
beneficial to the property. Escolta to the rear of the same; that upon this wall rests the
second floor of the building and that it is necessary to safely
4. ID.; ID.; ID.; LONG TERM LEASE. Under a long term maintain the building against earthquakes and typhoons; that
lease, the lessee should be allowed to make the changes on the 11th of April, 1911, the defendant commenced to
which industrial development or varying conditions may destroy and remove the said wall and was on the date of the
require, provided the interests of the lessor are clearly filing of this complaint actually engaged in the destruction and
benefited thereby. removal of the same; and unless restrained, would continue
such destruction and removal, to the irreparable injury of the
5. ID.; ID.; SUBTENANTS. A subtenant is bound to the plaintiffs; and that the defendant has varied the form and
original lessor by all the conditions of the original lease in so substance of the leased premises. The plaintiffs therefore
far as the use and preservation of the thing leased is prayed that the defendant be prohibited from destroying and
concerned. removing said wall; that it be ordered to rebuild or replace
that part which it had removed or destroyed; and that the
6. ID.; ID.; ASSIGNMENT OF LEASE. The power of contract of lease be declared terminated and rescinded.
assignment is incidental to the state of every lease of things
unless expressly forbidden in the lease. On the 12th day of April, 1911, a preliminary injunction was
issued by the Court of First Instance, prohibiting and
7. CONTRACTS; CONSTRUCTION. When it is not restraining the defendant from continuing the removal and
shown that words or phrases have a technical or special use, destruction of the wall in question, and requiring it to appear
and they are susceptible of two interpretations, that in court on the 17th of that month to show cause why such
interpretation most favorable to the party in whose favor they preliminary injunction should not be continued in force during
are used must be given. the pendency of this action.
8. ID.; COMMUNITY PROPERTY; LEASE; RIGHTS OF On the 21st of that month, the defendant company answered,
MINOR. Article 1548 of the Civil Code prohibiting the lease admitting the allegations as to the ownership, mortgage, and
of property of a minor for more than six years, does not lease, contained in paragraphs 1, 2, and 3 of the complaint,
necessarily apply when the property is communal. and denying all the other allegations therein. The defendant
set up by way of special defense that the wall in question was
9. ID.; ID.; ID.; SUBSERVIENT TO INTERESTS OF not a principal wall and did not extend the entire length of the
MAJORITY OWNERS. The supreme court of Spain has held building; that said wall consisted of two shells filled with
that in such a case the interests of the majority govern the mortar; that it was very old, deteriorated, and weak; that it
minor, the latter always having the right to appeal to the was necessary, in order to conserve the property, to remove
court when the decision of the majority is gravely prejudicial said wall and to substitute it with other material; that the wall
to him. in question is so located that it and its subtenant are deprived
of the use of a large part of the ground floor fronting on the
10. ID.; ID.; ID.; ACTS OF LEGAL GUARDIAN. The minor Escolta; that under Clause M of the contract of lease, the
in the case at bar having been represented by his legally defendant has the right to remove this wall, substituting in
appointed guardian and the action of the latter in signing the lieu thereof other material, this being required by the business
lease having been formally approved by the court, makes the established in said building.
contract of lease binding upon the minor.
As a second special defense, the defendant admits the
DECISION payment of the mortgage by the plaintiffs, but alleges that

the contract of lease is independent of the mortgage contract, "3. The judgment is erroneous in finding that the lessee
and that in satisfying the mortgage of the defendant, the acted in good faith in beginning the destruction of the wall,
leasehold was specifically continued in force by all parties. believing that under the contract of lease it had the right to
do this.
As a third special defense, the defendant alleges that under
the provisions of Paragraph M of the contract of lease, it has "4. The judgment is erroneous in not finding that the
expended the sum of over sixty thousand pesos in improving building is weakened by the destruction of the wall.
the leased premises, and that on making such expenditure it
believed that it would be reimbursed by enjoying the "5. The judgment is erroneous is so far as it modifies the
occupancy and subrenting of the premises. preliminary injunction.
On the 24th day of May, 1911, the Philippines Drug Company, "6. The judgment is erroneous in not declaring perpetual
a corporation organized under the laws of the Philippine the preliminary injunction.
Islands, appeared and asked leave to intervene as an
interested party. This leave being granted, it alleged that it is "7. The judgment is erroneous in the dispositive part
the actual owner of the pharmacy situated in the leased thereof relating to the form and manner of making the
premises, which formerly belonged to the defendant A. S. modifications in the property because it does not relate to
Watson & Company, Ltd.; and that the defendant sublet to it anything at issue in the case.
the ground floor of the leased property under the same
conditions as are expressed in the original contract of lease. "8. The judgment is erroneous in the part relating to the
The intervener further alleged, as did the defendant, the form and manner of making the modifications in the property
necessity for the removal of the wall in question in order to because it does not dispose of anything judicially, but, on the
give it more space as required by its business. and that the contrary, gives permission to the opposing parties without
removal of this wall was authorized in Paragraph M of the commanding them to do anything.
original lease.
"9. The judgment is erroneous because it does not order
The trial court, after considering the evidence presented, the repair of the destruction made in the wall.
making a personal inspection of the leased premises, and
hearing the arguments of counsel for both parties, and after "10. The judgment is erroneous because it declares valid
making its findings of facts and conclusions of law, entered the contract of lease.
the following decree, to wit:
"11. The court erred in denying the motion for a new
"The court denies the rescission and declaration of nullity of trial."
the contract of lease demanded by the plaintiffs. declaring
such contract of lease to be valid and subsisting and binding All questions in this case may be merged into one, and that is:
upon the parties thereto, and upon the sublessee and Did the trial court err in failing to declare the contract of lease
intervener, the Philippines Drug Company, and continues and voidable or rescinded for one of two reasons: first, because of
declares final the preliminary writ of injunction issued herein the minority of one of the lessors; and second, because
on the 12th day of April, 1911, but modifying the same by neither the defendant nor intervener had authority under the
permitting the defendant, A S. Watson & Co. Ltd., or the contract of lease to remove the wall in question ? Plaintiffs do
intervener, the Philippines Drug Company, to remove the wall not now insist that the contract of lease was terminated on
in question on the condition that they substitute it with the payment of the mortgage.
properly constructed concrete pillars and arches and such
The eight plaintiffs each have a one-eighth undivided interest
other work as may be necessary as specified in Finding No. 17
in the leased premises. The property was leased to the
of this judgment using such temporary shoring and bracing as
defendant for a period of twelve years with permission to
shall be necessary to insure the safety of the building while
renew the lease for a further period of six years. Seven of
such change is being made, which work of removal and
these plaintiffs were of age when they executed this contract
substitution may be commenced and carried out upon the
of lease. The other, Antonio Gascon, was a minor. At the time
defendant or intervener, or both, filing herein an undertaking
this contract of lease was executed, the minor was
in the sum of P10,000 with sureties approved by the court,
represented by his judicial guardian. The guardian having
conditioned that it or they will reimburse the plaintiff lessors
obtained authority or permission of the court to enter into this
for any and all damage that may be caused the leased
contract of lease for and on behalf of his ward, the action of
premises by a failure to take proper precautions and employ
the guardian in executing said contract was approved by the
proper means to safeguard and protect the building while
probate court.
such work of removal and substitution is being accomplished."
Article 1548 of the Civil Code reads:

From this judgment the plaintiffs appealed and make the
following assignment of errors:
"ART. 1548. The husband can not give in lease the
property of the wife, the father and guardian, that of the son
"1. The judgment is erroneous in not having declared
or minor, and the administrator of property, not having a
rescinded the contract of lease.
special power, for a period exceeding six years."
"2. The judgment is erroneous in finding that the lessee
Article 398 of the same code provides:
and sublessee have the right to change the form and
substance of the property leased.

"ART. 398. The decision of a majority of the coowners that refers to the exploitation and ordinary enjoyment of the
as to the management and better enjoyment of the thing same, the rule is established that the enjoyment of the
owned in common shall be obligatory. common thing must be subject to the will of the majority,
without distinguishing and limiting the period or the form of
"There shall be no majority, unless the resolution has been the enjoyment; therefore, the contract of lease being the
adopted by the coowners representing a majority of the same in essence whatever the term for which it is constituted,
interests which constitute the object of the community. such a contract must be considered as an act of mere
administration, and subject to contract by the decision of the
"Should there be no majority, or the resolution of the latter is majority of coowners, the other interested parties always
seriously prejudicial to the parties interested in the thing having the right to appeal to the court when the decision is
owned in common, the judge, at the instance of a party, shall gravely prejudicial to them according to the provisions of the
decree what may be proper, including the appointment of an same article 398.
administrator."
"This doctrine was recognized by the supreme court in its
xxx xxx xxx decision of June 30, 1897, and of the 8th of July, 1902, and by
this court in its resolution of May 29, 1906, considering as
Counsel for the plaintiffs do not claim that the contract of included in the powers conferred in said article, leases
lease which was made for a period of more than six years is exceeding a period of six years, decided upon by a majority of
seriously prejudicial to the interests of the minor, nor do they the coowners of a property possessed in common.
claim that said contract, of itself, prejudices in any way the
minor's interest. "The contract of lease of the property referred to in these
proceedings, having been agreed upon by the coowners
The supreme court of Spain had under consideration this very representing the majority of the interests in the same, they
question in its resolution of April 26, 1907 (vol. 15 were possessed of sufficient legal capacity by virtue of what is
Jurisprudencia referente al Codigo Civil, p. 194). In this case, a already said, and it is, therefore, subject to registry."
contract of lease for twelve years, executed by one of the
coowners of a certain property, one of whom was a minor, had In the execution of the contract of lease under consideration,
been presented for registry. Registry was refused for the the minor was, as we have said, represented by his judicial
reason, among others, that the majority of the coowners guardian, who not only asked the court for and obtained
lacked authority to execute said contract of lease. It was authority to execute this contract of lease on behalf of his
argued that the majority of the coowners, in their enjoyment ward, but his act, after the execution, was approved by the
of the control of the management and administration of the court. The interest of the minor has not been prejudiced by
thing, acted in a representative or an administrative capacity reason of the fact that this contract of lease was executed for
in regard to the minority. In determining the questions a term of more than six years. Under the doctrine laid down
presented in this case, the court said: by the supreme court of Spain, it would appear that this
contract of lease would be valid if the minor had not been
"That for the administration and better enjoyment of the represented by his guardian. The minor having been
thing, the decision of the majority of the coowners is represented by his duly appointed guardian, there can be no
obligatory, and that there is no majority, unless the decision is question about the validity of this contract of lease.
made by the coowners, that represent the majority of the
interests that constitute the object of the community, are The principal question is whether or not the appellees have
general rules laid down in article 398 of the Civil Code, violated the terms of the contract of lease and thereby entitle
governing community of property. the appellants to have said contract of lease rescinded.
"The contract of lease is by its nature and purpose one of the Before considering the contract in question, it might be well to
means of enjoyment or development of non-fungible property, examine the right of the lessee to make changes in the
and, in this concept, may be agreed upon by the coowners of property leased, if there were no express stipulation therefor
a thing, provided always that they represent a majority of the in the contract.
interests of the community, the decision being obligatory for
all by virtue of the powers that are expressly conferred upon Article 1573 of the Civil Code provides:
them by virtue of said provisions.
"A lessee shall have, with regard to the useful and voluntary
"If, indeed, the contract of lease of real property for a period improvements, the same rights which are granted the
exceeding six years, or in which the rents are advanced for usufructuary."
more than three years, constitutes a real right inasmuch as it
is subject to registry, according to the decision of this court in Article 487 of the same code reads:
various resolutions, this principle of law, which has been
applied in the sense of not permitting the execution of such a "The usufructuary may make on the property which is the
contract to those who administer the goods of others, and object of the usufruct any improvements, useful or for
especially to prevent agents from executing such a contract recreation, which he may deem proper, provided he does not
without special authority for the same, in accordance with the change its form or substance; but he shall have no right to be
provisions of article 1713 of the said code, is not opposed to indemnified therefor. He may, however, remove said
the principle of law laid down in said article 398; taking into improvements, should it be possible to do so without injury to
consideration the legal character and peculiar attributes of the property."
community of property, which makes it convenient and
necessary that those who have less interest therein should The result is that the lessee may make any improvements,
submit to those who have a greater participation therein, in all useful or for recreation, in the property leased that he may

deem proper, provided that he does not change its form or "The decision also states that the changes made in the
substance. The same obligation is expressed in articles 487 property did not change the form of the same in the sense
and 489, and in so far as the form of the thing is concerned, in and concept covered by article 1557 of the Civil Code.
article 1557. According to articles 487 and 1557, the Notwithstanding that the findings on the point contain legal
obligations of the lessee and the lessor are the same in the reasoning now corresponding to this court, the interpretation
absence of any agreement to the contrary, in so far as the of this article can not be made in general and absolute terms
conservation of the form of the thing leased is concerned. This not defined by law, because as a circumstantial fact
question of conserving the form and substance of the thing depending in each case on the peculiar conditions of the thing
leased or the object of the usufruct has been passed upon at leased, there exists no reason in the case at bar upon which
various times by the courts. to base the conclusion that the trial court erred, having in
mind that the particular use of the same as a tavern was not
In the case of the Manila Building and Loan Association and interfered with, as held in its decision, and also the fact set
Pealosa (13 Phil. Rep., 575), this court said: out in its decision, and not contradicted in any manner,
namely, that the changes and alterations made were
"If the object leased were a house, it is evident that the lessee beneficial, tolerated by Sabay, and consented to by the
might effect such improvements for use, recreation or comfort person to whom Sabay transferred his rights under the
as would not change its form or substance as he deemed fit; contract of sublease.
he could build a tower or luxurious pavilion more expensive
than the house itself, to which, at the expiration of the lease, "The last two reasons given for the rescission of the contract
the owner of the house would have no right whatever, unless lack force and weight, because, in accordance with the sense
the lessee could not remove the same without injury to the and concept of article 1561 of the said Civil Code, the
house to which it was attached as an improvement, excepting property must be returned at the expiration of the term of
of course the right to cause the same to be demolished so lease with the changes made in the same, and these do not
that the house might be returned to him in the same condition involve, as has already been said, any variation or change of
that the lessee received it; . . ." form or any interruption of the peaceable enjoyment of the
lease and because it does not appear from the facts that the
The supreme court of Spain, in its judgment of June 24, 1905, trial court accepted as proven that the appellant suffered
volume 14 of the Jurisprudencia referente al Codigo Civil, page disturbance of his rights for which he had been compelled to
38, had under consideration the interpretation of this phrase become responsible to the lessor, and he, not having done so,
in a case in which the lessee asked for the rescission of the there is no legal reason to apply, as is attempted, the
lease because the lessor had altered the form of the thing provisions of article 1560 of the code referred to."
leased. The facts were that the lessee had leased the house
for the period of ten years, and at the time of the execution of Manresa, in volume 10 of his commentaries on the Civil Code,
the contract of lease, there was a vacant lot next to the house pages 534, 535, [488, 489] says:
and 13 windows of the house leased overlooked this lot.
Thereafter the owner of the adjacent lot constructed an "The question was discussed very energetically as to whether
edifice thereon which gave rise to litigation between the the lessee of a city property leased for a stated industrial
lessor and the owner of the adjacent lot, which litigation was purpose, could install machinery propelled by steam in
settled by the lessor and the owner of the said lot, the latter substitution for the utilities, implements, and contrivances
being permitted to cover the windows of the leased property, which were used before the general adoption of such
and the former allowed to open in the partition wall of the machinery. The installation of modern machinery and its
latter's garden two large and two small windows of specified ordinary operation, at once caused a deterioration to the
dimensions, under certain conditions. The construction was estate much greater than the use of the former apparatus,
continued, with the result that such construction effectually besides the accidents which might occur and which produce
closed and covered the 13 windows and the balcony, very great damage to the thing leased. Therefore, based upon
depriving the property leased of the light previously received this consideration, it was said that the lessee could not make
by the same. For the purpose of obtaining better light, many this substitution because it implied a bad and prejudicial use
changes were made and much work done in the interior of the of the thing and therefore very different from that diligence of
leased house, the final result being that some of the rooms of a good father in its use to which he had obligated himself.
the house were darkened completely, others receiving poor
and indirect ventilation. The court, in refusing to rescind the "As Laurent says, there arise here two contrary interests and
contract of lease, said: two diverse tendencies. The owner has in view the stability of
the structure and fears every innovation which may
"It does not appear that there is error committed by the trial compromise its preservation. The manufacturer finds himself
court in its decision as set out in the first assignment of error, obliged to keep abreast of the development of his industry, to
because, even though the noncompliance by the lessor of his make changes, if he does not wish to perish, and his interests
obligations, among which was that of maintaining the lessee demand that he put into practice the inventions which
in the peaceable enjoyment of the lease during the period of increase his profits, even though the edifice may suffer. The
the contract, and the prohibition to change the form of the owner commences to resist, adds this writer, but competition
thing leased, confers upon the lessee the right to ask for the forces the manufacturer, and the owner ends by yielding, if he
rescission of the contract, such circumstances are not found in does not wish to remain unproductive.
the present case since the trial court says that the appellant
was not disturbed in the possession of the house, the object of "This is the essence of the policy pursued by foreign
the lease, nor was he impeded from using the premises as a decisions, where the question has been so much more
tavern, for which use he had intended the same, and these important than in our own country. Until the year 1860,
findings of fact have not been legally impugned. judicial decisions were inclined to favor the owner of the
property. But from that year the rights of industry have been

recognized with ever increasing clearness. It has been buildings and presses, which had become useless, to fall into
considered that from the moment the lease is drawn up, in decay rather than incur the expense of repair. Would a
which is stated the industrial use to which the lessee desires prudent owner of the fee, if in possession, have done the
to put the thing leased, the claims of the industry to which the same ? These questions naturally suggest their own answer.
object of the lease is to be devoted have been determined, The radical and permanent changes of surrounding conditions
and the lessee can not be condemned to a stagnation which must always be an important consideration in the
would be uneconomical, and, these facts admitted, the logical determination of such questions. The interpretation that "if
consequences must necessarily follow: the lessor can not the man is too long for the bed his head should be chopped
prevent the lessee from adopting the improvements of his off rather than enlarge the old bed or purchase a new one"
industry; the acts of the parties in making the stipulations in should not be given those provisions of the Civil Code
the lease will do the rest." regarding the obligations of lessees.
The lessee may make on the property which is the object of Let us now turn to the contract of lease and the evidence
the lease any improvements, useful or for recreation, which presented. In this contract of lease there are two clauses
he may deem proper, provided he does not change its form or which deserve careful consideration.
substance. He is obligated to use the thing leased as a
diligent father of a family would, and to return the thing Clause K:
leased at the expiration of the lease in the same condition in
which he received it, except what may have been destroyed "All the expenditures for cleaning, painting, and repairs which
or impaired by time or unavoidable reasons. (Arts. 1573, 487, the building may require and all that is ordered done by the
1555, and 1561, Civil Code.) Board of Health, will be at the expense of the lessee A. S.
Watson and Company, Limited.
The supreme court of Spain recognizes the fact that no
ironclad rules for the interpretation of these articles can be Clause M:
laid down which would govern all cases. These provisions
must be applied according to the facts and circumstances of "The lessee may make such works on the building as the
each case. Manresa is inclined to the view that industrial business which it has established therein requires, provided
development should be taken into consideration in the always that neither the strength nor the value of the said
determination of questions involved in the application of said building is impaired."
articles. The provisions of these articles are general rules of
law, and, like most general propositions, are not to be It will be noted that the word "reparaciones" is used in Clause
accepted without limitation or reserve. under any and all K, and the word "obras" in Clause M. Counsel for the
circumstances. They must be interpreted in the light of the appellants insist that the word "obras" as thus used means
growth of civilization and varying conditions. Certain the same as "reparaciones." The Encyclopedic Dictionary of
obligations are placed upon the lessee to prevent lawless acts the Castilian Language (Diccionario Enciclopedico de la
which would result in waste or destruction. The importance of Lengua Castellana) defines these words as follows:
these obligations to the lessor cannot be denied. Especially
are they valuable and essential to the protection of a landlord OBRA:
who rents his premises for a short time. Suppose he has fitted
"1. A thing made or produced by an agent.
his premises for certain uses and leases them for such uses
for a short term. He would then be entitled to receive them
xxx xxx xxx
back at the end of the term still fitted for those same uses,
and he may well say that he does not choose to have a
"4. A building in course of construction.
different property returned to him from that which he leased,
even if it be found to be of greater value by reason of the "REPARACION:
change. But suppose that a usufructuary who has a life
interest in an estate should receive as such a hemp hacienda, "1. The action and effect of repair. (Reparar verb: To
and that in a short time this hacienda should become mend, to straighten, or to correct the damage suffered by
permanently unproductive through disease or death of the something.)"
plants, or by change of the market conditions, and the land to
have become far more valuable, by reason of new conditions, The New Dictionary of the Castilian Language (Nuevo
as rice or sugar land. Is the usufructuary to be compelled to Diccionario de la Lengua Castellana) defines the same words
preserve or renew the useless hemp fields and forego the as follows:
advantages to be derived from a different use ? Or, suppose a
life tenant should change warehouses into dwelling houses on "OBRA:
the ground that by change of conditions the demand for
warehouses had ceased and the property had become "Anything made, created, or produced by some power or
worthless, whereas it would be very valuable when fitted for agent. Any construction of architecture, masonry, or
dwelling houses. Would this be such a change in the form or carpentry, applied especially to buildings in course of
substance of the thing leased as to forfeit the interest of the construction or repair, as: 'There are three jobs in Calle
tenant? Again, a lessee for a long term received, during very Hortaleza. Everything in my house is disordered and topsy
prosperous times, a hemp hacienda upon which were turvy because of the work.'
constructed large and valuable storehouses in which were the
old style hand-presses, but new. Later, on account of a "REPARACION:
complete change in conditions due to the market and the
method of pressing hemp by steam, the lessee allowed the

"The act or effect of repairing or of being repaired. The fact of parties had intended that the two words be used in the same
repairing, in the sense of renewing or improving something." sense they would have so stated, or they would have
eliminated Clause M entirely as being useless, as it is
The only synonym given in this work for "obra" is meaningless to say that when a duty is imposed upon a
"produccion." person it is necessary to expressly give him a right to perform
that duty. If he did not have the right to perform that duty, the
It may be that repairs are included in the definition of "obras." same would not have been imposed upon him. The
Nevertheless, it cannot be denied that the word "obras," used stipulations in Clause M are expressed as clearly and explicitly
in its general sense, has a far more comprehensive meaning as they could have been under the circumstances. At the time
than just simple repairs. Sections 290 and 293 of the Code of of the execution of this contract of lease, it was impossible to
Civil Procedure, provide: know what would be the requirements of the business during
its term of eighteen years. It was likewise impossible for the
"SEC. 290. Terms of a writing presumed to be in their parties to have then agreed in detail as to the changes that
ordinary sense. The terms of a writing are presumed to might be necessary. The lessee wished to reserve to itself the
have been used in their primary and general acceptation, but right to make the changes in the property required by its
evidence is nevertheless admissible that they have a local, business, and none of the parties could anticipate what might
technical or otherwise peculiar signification, and were so used be required during this long period of time. This right was
and understood in the particular instance, in which case the conferred upon the lessee by the lessors, but the right, as we
agreement must be construed accordingly." have said, had its limitations: that is, the lessee could not
prejudice the solidity or the value of the building without
"SEC. 293. Where intention of different parties to breaking the contract.
instrument not the same. When the terms of an agreement
have been intended in a different sense by the different The question was raised as to whether the conduct of the
parties to it, that sense is to prevail against either party in parties in carrying out the terms of this lease has been such
which he supposed the other understood it; and when as to show or indicate their intention or understanding of the
different constructions of a provision are otherwise equally meaning of the word "obras" when they inserted this word in
proper, that is to be taken which is the most favorable to the Clause M. Upon this point the trial court said:
party in whose favor the provision was made."
"That under and by virtue of the said contract of lease, the
In the case at bar no proof has been presented tending to defendant company entered into possession of the leased
show that the word "obras" was used in a technical or special premises, making therein alterations and repairs at a cost of
sense, or that it has a local signification, and therefore, it some P60,000, including the removal of the whole front of the
must be considered as used in its ordinary and general sense. building facing upon the Escolta and replacing the same upon
If there exists any ambiguity and if the meaning that the the new street line, established by the city of Manila, with a
appellants give to the word "obras" is proper, the meaning modern and decorative commercial front; the removal of the
given by the appellees is likewise proper, consequently, we heavy tiled roof and the replacing of the same with a light
must apply the rule laid down in section 293, above quoted, galvanized roof; the removal of various walls and replacing
for the reason that the stipulation contained in Clause M of the same with steel columns and girders; the tearing down
the contract is a stipulation in favor of the lessee. and rebuilding of a part of the building and the adding thereto
of a camarin upon the Pasig River; and the building of a river
Counsel for appellants insist that in order to define the wall and reclamation of a considerable amount of ground; and
meaning of the word "obras" we should refer to the articles of which alteration included the removal of that part of the wall
the Civil Code that deal with contracts of lease. This might be in question which extended from Point A to Point G on the plan
done in those cases where the intention of the parties could of the premises introduced in evidence as defendant's Exhibit
not be ascertained from either the contract itself or from the No. 9, all of which repairs, alterations, and improvements,
conduct of the parties in executing and carrying out the same. were made with the final approval of the plaintiffs, although
In the case at bar, all that is necessary is to give a fair and after much controversy and many disagreements, and to
reasonable interpretation to the meaning of Clause M of the which alterations and improvements the plaintiffs contributed
contract of lease. This clause contains certain limitations on the sum of about eighteen hundred pesos paid by the city of
the exercise of the right to make alterations (obras): first, the Manila for the expropriation for street purposes of the small
alterations (obras) proposed to be made must be required by strip along the front of the building heretofore mentioned."
the business; second, such alterations must not injure the
solidity of the building; and third, the same must not prejudice These findings of fact are, we think, fully supported by the
the value of the building. But it is insisted, as we have said, evidence. The result is that these important and material
that the word "obras" in Clause M must be interpreted to changes, which include the removal of a great portion of the
mean "reparaciones" as used in Clause K. Clause K imposes very wall in question, were made by virtue of the contract of
upon the lessee the obligation to make the repairs required by lease itself. It is true that the owners objected at first, but
the building for its conservation. If the words have exactly the afterwards consented in accordance with the provisions of
same meaning and were intended by the parties to mean the Clause M, and not by reason of any subsequent specific
same thing, then the insertion of Clause M would only have agreement. After all, that the defendants have the right under
had the effect of giving to the lessee the right to keep the the law and the provisions of Clause M of the contract of lease
building in repair, when, as a matter of fact. Clause K made it to remove the wall in question, cannot be seriously doubted,
its duty to repair the building. As we understand the contract, provided always that neither the solidity of the building nor its
in Clause K a duty is imposed upon the lessee, while in Clause value be impaired.
M a right is given to it. In Clause K the word "reparaciones" is
used in connection with the duty, and in Clause M the word Let us now determine whether or not a removal of the wall in
"obras" is used in connection with the right. If the contracting question (1) will prejudice either the solidity of the building or

its value, and (2) if it is required by the business of the of contract and that therefore even if by clause (m) of the
defendants. lease the plaintiffs had the obligation to permit the defendant
to take out the wall to suit the convenience of its own
The wall which the defendants and interveners propose to business, that such an obligation was purely personal
remove and substitute in lieu thereof other material is between the parties to the lease and since the contract of
composed of two outer shells of Guadalupe or Meycauayan lease is not assignable this right could not be transferred by
stone, filled with lime, plaster and rubber, the two shells being defendant or made use of by defendant for the benefit of
bound together by stones laid transversely, the whole wall so other persons."
formed being about one meter thick and extending from the
front of the building a distance of about 38 meters toward the A lease may be of things, works, or services. (Art. 1542, Civil
Pasig River. This wall is about four meters high, extending Code.) In a lease of things, one of the parties thereto binds
from the ground floor to the second floor. The joists and himself to give to the other the enjoyment or use of a thing
girders supporting the second floor are embedded in said wall. for a specified time and for a fixed price. (Art. 1543, idem.)
There are two actual openings in this wall, with three doors
and an arch, which have been walled up. The wall is in good Article 1550 of the Civil Code reads:
condition, except that part removed by the defendants before
the commencement of this action, and said wall is one of four "Should it not be expressly forbidden in the contract of lease
longitudinal walls, all being approximately of the same of things, the lessee may sublet the whole or a part of the
thickness. The wall in question divides the east half of the things leased without prejudice to his liability for the
ground floor of the building approximately in its center and fulfillment of the contract executed with the lessor."
sustains a part of the weight of the second floor of this east
half, together with a partition forming one of the divisions of There is nothing in the contract of lease in the case at bar
the second floor. But it does not sustain any of the weight of which even tends to prohibit the lessee from subletting the
the roof, this weight being distributed by means of trusses to whole or any part of the leased premises. The lessee's right to
the outer walls of the building. About one-third of this wall, or do this cannot be questioned, and his subtenant is not only
that part nearest the Pasig, has already been removed, and obligated to carry out his part of the contract with the
the removal of the same was approved by the owners. The sublessor, but he is also bound to the lessors for all of the acts
interveners now propose to remove the remaining two-thirds which refer to the use and preservation of the premises, in the
and substitute in lieu thereof other material, using the manner agreed upon between the lessors and the lessee. The
material of the old wall for filling up certain openings in other lessors can compel the subtenant to comply with these
walls of the building. This old wall, according to the experts, conditions. This sets up the privity between the lessors and
offers very little resistance to lateral shocks or motions. the subtenant. But it is said that the contract of lease in
Practically all of the resistance of lateral shocks or motions is question is not assignable. This contract is an ordinary one,
furnished by the cross-walls. Again, according to the opinion under which the lessee as we have said, has a perfect right to
of the experts the building will be greatly strengthened sublet the whole of the premises for the entire time. Should
against earthquakes or unusual shocks or force, and its the lessee do this, would it not amount to an assignment of
durability increased by the removal of the remaining part of the contract of lease? The power of assignment is incident to
the wall in question and the substitution in lieu thereof of the state of every lessee of things, unless he has been
reinforced concrete posts or pillars and arches, taking the restrained by the terms of his lease. In the contract of lease in
material and filling, as the interveners propose to do, the question, the lessors, by Clause M, agree that the lessee may
openings in some of the other walls. Such proposed removal, make such changes as its business requires, provided that
if carried out, will practically double the floor space of the neither the solidity nor the value of the building is prejudiced.
drug store and greatly increase its rental value, and also This is a specific right granted to the lessee. This right is a
greatly increase the actual value of the building. This extra part of the lease itself and affects directly the thing leased. It
floor space is absolutely essential to the business carried on in is not, therefore, a personal obligation between the lessors
this part of the building. The foregoing are substantially the and the lessee.
findings of the trial court, based upon the testimony of expert
witnesses, and an ocular inspection of the premises. These We are, therefore, of the opinion that the judgment appealed
facts show clearly and beyond a question that the removal of from should be affirmed with costs against the appellant.
the remainder of this old wall will not only not prejudice the
solidity of the building, but greatly increase its solidity and Johnson, Carson, and Moreland, JJ., concur.
durability, as, according to the opinion of the experts, the
Arellano, C.J., and Mapa, J., dissent.
reinforced concrete posts and arches will offer greater
resistance to earthquakes or baguios than the old wall; that
Separate Opinions
both the intrinsic and rental value of the building will be
increased; and that this removal is required by the business.
TORRES, J., dissenting:
Lastly, counsel for the appellants say:

Notwithstanding the respect the opinion of the majority
deserves, I regret that I can not agree with the foregoing
"The plaintiffs contend that a contract is only binding on the
decision in so far as it allows the defendant, A. S. Watson &
parties thereto as provided in article 1257 of the Civil Code
Co., or the intervener, The Philippines Drug Company, to
and that, although a sublessee is bound to the lessor as
remove the wall in question on condition that they replace it
provided in articles 1551 and 1552 yet this is not an obligation
by pillars and arches of reinforced concrete, with the
arising out of contract but one founded in law and the relation
remaining circumstances set forth.
of the parties to property, and that the lessor has no
obligation towards the sublessee as such at all either legal or

In my opinion this point in the judgment appealed from should In a country like this, where the ground is frequently shaken
be reversed by sustaining the injunction issued by the court by an enormous internal force, causing violent earthquakes, it
and ordering the destroyed wall to be restored to the form and is customary to build for the solidity of the structure walls of
condition it previously had. size and extent such as that of the property in question, which
was destroyed by the defendant party by and for itself. In
The destruction of this wall amounts to a change in form and spite of the defects ascribed thereto, it is sufficient to assert
an essential modification of the condition of solidity the that said wall has withstood all the violent earthquakes that
property had before it was removed. The best proof that it have occurred during the latter half of the past century, and
was not expedient to remove the wall in question is the fact yet it was arbitrarily torn down without the knowledge and
that immediately, and as the wall was being torn down, the consent of the owners and in spite of an injunction of the
building was propped up and another wall erected to replace court, not because it was not solid but because it was thick
the one taken out. and wide and took up a good deal of space in the place which
the defendant company wished to use to its full extent. A
Article 1557 of the Civil Code prescribes: concrete wall, with which the destroyed stone was replaced,
would be more convenient for the interests of the defendant
"The lessor can not change the form of the thing leased." because it would take up less room, but the solidity of
concrete walls in this land of earthquakes has not yet received
Article 1561 thereof says: the stamp of conclusive test in one of those violent
phenomena, happily not yet experienced since concrete
"The lessee must return the estate at the expiration of the buildings have been erected here. But if the will of the parties
lease in the same condition in which he received it, except is the law in contracts not contrary to law, morality and public
what may have been destroyed or impaired by time or by order, and in cases not foreseen by the interested parties, the
unavoidable reasons." rules and provisions of law that protect the reciprocal rights
and duties of the contracting parties, the leasing company
In the contract of lease appears the following Clause M:
unquestionably had no right to tear down the wall in question
and replace it by another of concrete without the consent and
"The leasing company may perform on the property the work
against the express objection of the owners of the property.
required by the business it has established therein, provided
that the solidity of the building is not damaged or its value
Therefore, I think that the first part of the judgment appealed
affected."
from should be affirmed and that the second part, referring to
the authorization therein conferred upon the defendant party
The defendants proceeded to tear down said wall in violation
to remove the wall in question and replace it by another of
of the provisions of law and the agreement in the contract of
concrete with the conditions set forth, ought to be reversed
lease, for the clause quoted does not authorize them to
and the defendant party ordered to replace the destroyed wall
destroy the central wall of the building, even with the
in the form and condition it formerly had, with the costs
intention of replacing it by another wall of concrete, and in
against the defendant party.
doing so they changed the form of the building and performed
work not authorized in the contract, and which essentially
THIRD DIVISION
affects the solidity of the building.
[G.R. No. 148411. November 29, 2005.]

Even though said clause provides that the leasing company
may perform the work required by the business it has
MARTHA R. HORRIGAN, petitioner, vs. TROIKA COMMERCIAL,
established therein, yet the same clause says: provided that
INC., respondent.
the solidity of the building is not damaged or its value
affected. By tearing down the wall in question and changing
Ponce Enrile Reyes & Manalastas for petitioner.
its form as the central support of the whole weight of the
second story and of the framework of the roof, the defendant Saludo Agpalo Fernandez & Aquino for respondent.
company undoubtedly performed work which essentially
affects the solidity and value of the structure. SYLLABUS
The convenience of the tenant, not admitted by the owner, is 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
no legal reason or cause whereby the former may alter the INTERPRETATION OF CONTRACTS; OBSCURE WORDS SHALL BE
condition of the property, and as there was no express CONSTRUED AGAINST THE PARTY WHO DRAWS UP THE
stipulation that said wall might be torn down, it is impossible CONTRACT; CASE AT BAR. Article 1377 of the Civil Code
to assert that the leasing company has not violated the provides: "ART. 1377. The interpretation of obscure words or
contract and the legal provision which protects the rights of stipulations in a contract shall not favor the party who caused
the owner, who should in no sense be at the mercy of the the obscurity." In a long line of cases, we have consistently
caprice and convenience of the tenant, for that would give held that the party who draws up the contract, in which
rise to a genuine transgression upon the right of property. obscure words or phrases appear, bears the responsibility for
causing the ambiguity or obscurity, and hence, these must be
One of the obligations of lease under article 1555 is to use the construed against him. In this case, it was petitioner's spouse
thing leased like a careful householder by applying it to the who prepared the sub-lease contract in question.
use agreed upon, and, in default of agreement, to the use that Consequently, the ambiguity must be construed against
may be inferred from the nature of the thing leased according herein petitioner as she is presumed to have confirmed the
to the custom of the land. There is no custom in this country same. TSEHcA
whereby a tenant may without permission of the owner tear
down in this way a central wall that upholds a building.

2. REMEDIAL LAW; EVIDENCE; INTERPRETATION OF In her answer, petitioner averred that the 10% yearly
DOCUMENTS UNDER SEC. 17, RULE 130; WHERE DIFFERENT guaranteed increase applies only to her additional rental of
CONSTRUCTIONS OF A PROVISION ARE PROPER, THAT IS TO P4,500.00 starting August 1, 1983 and that she has been
BE TAKEN WHICH FAVORS THE PARTY IN WHOSE FAVOR THE paying the corresponding amounts since 1984. She admitted
PROVISION WAS MADE; CASE AT BAR. There is also no that from June 1984, she has been giving respondent
question that the 10% guaranteed yearly increase of rents "P1,200.00 monthly ex-gratis" in appreciation of its efforts to
provided for in sub-paragraph 2.2 of the sub-lease agreement improve her business. She denied, however, that these sums
is for the benefit of respondent herein, being the sub-lessor of are rental adjustments. She also claimed that even assuming
the premises. As such, any doubt in its interpretation must be that she still owed respondent, under sub-paragraph 2.2, the
interpreted in its favor. This is in line with Section 17, Rule 130 amount due is only P58,485.50. She stopped paying the
of the Revised Rules of Court. yearly increase since August 1986 because of respondent's
demand that she should also pay the yearly increase
DECISION equivalent to 10% of the original P12,500.00 monthly rental.
SANDOVAL-GUTIERREZ, J p: On May 18, 1995, the trial court rendered its Decision in favor
of respondent. It ordered petitioner to pay respondent her
Before us is a petition for review on certiorari seeking to unpaid rental adjustments in the sum of P318,489.00 with
reverse the Decision 1 of the Court of Appeals dated May 31, interest at 12% per annum from September 2, 1991 until the
2001 in CA-G.R. CV No. 50330. HETDAC obligation is fully paid.
The facts of this case are not in dispute. On appeal, the Court of Appeals, in its assailed Decision,
affirmed the trial court's judgment in toto.
Troika Commercial, Inc., (Troika), herein respondent, is the
lessee of the entire ground floor of a two-story building Hence, the instant petition for review on certiorari.
located at 53-A Annapolis St., San Juan, Metro Manila.
Respondent then sub-let a portion of the ground floor to The sole issue for our resolution is whether the Court of
Martha Horrigan, petitioner, to be used for her restaurant Tia Appeals erred in ruling that the 10% guaranteed yearly
Maria. The contract of sub-lease dated April 20, 1983 between increase of rental rates applies to both the original monthly
the parties was prepared by Martha's husband. It provides, rental of P12,500.00 and the additional monthly rental of
among others, the following stipulations: P4,500.00. aIcDCT
"2. In consideration thereof, Martha R. Horrigan Article 1377 of the Civil Code provides:
undertakes, promises and guarantees payment to Troika of
the following: "ART. 1377. The interpretation of obscure words
or stipulations in a contract shall not favor the party who
2.1. P12,500 monthly starting March 15, 1983 and every caused the obscurity."
month thereafter until December 31, 1989 payable every ___
day of the month. In a long line of cases, 2 we have consistently held that the
party who draws up the contract, in which obscure words or
2.2. In addition to the above (sub-par 2.1), P4,500 phrases appear, bears the responsibility for causing the
monthly starting August 1, 1983 and every month thereafter ambiguity or obscurity, and hence, these must be construed
for seven (7) years until December 31, 1989 plus a against him. In this case, it was petitioner's spouse who
guaranteed yearly increase equivalent to 10% thereof." prepared the sub-lease contract in question. Consequently,
the ambiguity must be construed against herein petitioner as
The instant case stemmed from the parties' different she is presumed to have confirmed the same.
interpretations of the phrase "a guaranteed yearly increase
equivalent to 10% thereof" in relation to sub-paragraphs 2.1 There is also no question that the 10% guaranteed yearly
and 2.2 of their agreement. increase of rents provided for in sub-paragraph 2.2 of the sub-
lease agreement is for the benefit of respondent herein, being
Respondent construed the 10% guaranteed yearly increase to the sub-lessor of the premises. As such, any doubt in its
apply to both the original monthly rental of P12,500.00 under interpretation must be interpreted in its favor. This is in line
sub-paragraph 2.1 and the P4,500.00 additional rental under with Section 17, Rule 130 of the Revised Rules of Court which
sub-paragraph 2.2. For her part, petitioner claimed that the states:
10% "guaranteed yearly increase" is applicable only to the
additional P4,500.00 rental contained in sub-paragraph 2.2 of "SEC. 17. Of two constructions, which preferred.
the sub-lease contract. When the terms of an agreement have been intended in a
different sense by the different parties to it, that sense is to
Respondent sent petitioner letters, together with its billing prevail against either party in which he supposed the other
statements, explaining the application of the 10% yearly understood it, and when different constructions of a provision
increase of rental rates. But petitioner ignored them. On May are otherwise equally proper, that is to be taken which is the
3, 1991, respondent sent petitioner a final demand letter most favorable to the party in whose favor the provision was
asking her to pay P318,489.00 corresponding to the unpaid made (stress supplied)."
rental adjustments. TEaADS
WHEREFORE, the petition is DENIED. The challenged Decision
When petitioner refused to pay, respondent filed with the of the Court of Appeals in CA-G.R. CV No. 50330 is AFFIRMED
Regional Trial Court, Branch 148, Makati City, a complaint for IN TOTO. Costs against the petitioner. SO ORDERED.
sum of money, docketed as Civil Case No. 91-2410.


Library Work

Uploaded by

Copyright:

Available Formats

Library Work

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Library Work

Uploaded by

Copyright:

Available Formats

SECOND DIVISION to a situation where the mortgagor had died, thus

necessitating personal notice to the latter's heirs for reasons

MichTrina Evidence Library Work Page 1

MichTrina Evidence Library Work Page 2

"But even assuming the correctness of the valuation placed DECISION

MichTrina Evidence Library Work Page 3

MichTrina Evidence Library Work Page 4

Fifth Assigned Error xxx xxx xxx

MichTrina Evidence Library Work Page 5

MichTrina Evidence Library Work Page 6

MichTrina Evidence Library Work Page 7

MichTrina Evidence Library Work Page 8

GONZAGA-REYES, J p: WITNESSETH THAT:

MichTrina Evidence Library Work Page 9

Sgd. Sgd. Antonio P. Gatmaitan

ABELARDO B. LICAROS ANTONIO P. GATMAITAN 7 Mangyan St., La Vista, QC

WITH OUR CONFORME: (SGD.)

ANGLO-ASEAN BANK & TRUST ________________ _______________

BY: (Unsigned) Francisco A. Alba

SIGNED IN THE PRESENCE OF. President, Prudential Life Plan, Inc.".

Sgd. (illegible) Thereafter, Gatmaitan presented to Anglo-Asean the

MichTrina Evidence Library Work Page 10

MichTrina Evidence Library Work Page 11

MichTrina Evidence Library Work Page 12

MichTrina Evidence Library Work Page 13

h. Except as disclosed in the Disclosures, and except to xxx xxx xxx

X = __________________________ (1.925) Thereafter, in a letter of May 5, 2003, RCBC informed

MichTrina Evidence Library Work Page 14

15.2 A further Procedural Order will be necessary

MichTrina Evidence Library Work Page 15

xxx xxx xxx The Court's Ruling

MichTrina Evidence Library Work Page 16

MichTrina Evidence Library Work Page 17

MichTrina Evidence Library Work Page 18

MichTrina Evidence Library Work Page 19

MichTrina Evidence Library Work Page 20

MichTrina Evidence Library Work Page 21

MichTrina Evidence Library Work Page 22

MichTrina Evidence Library Work Page 23

MichTrina Evidence Library Work Page 24

MichTrina Evidence Library Work Page 25

MichTrina Evidence Library Work Page 26

In defense, petitioner and Aragon claimed that the letters

MichTrina Evidence Library Work Page 27

III. SALUN-AT MARQUEZ and NESTOR DELA CRUZ, petitioners, vs.

MichTrina Evidence Library Work Page 28

DEL CASTILLO, J p: Factual Antecedents

SO ORDERED. 4 thence S. 28 deg. 20 'W., 200.00 m. to point 4;

MichTrina Evidence Library Work Page 29

MichTrina Evidence Library Work Page 30

SO ORDERED. 25 Rephrased and consolidated, the parties present the following

MichTrina Evidence Library Work Page 31

III These arguments were ineffectual in convincing the Court to

MichTrina Evidence Library Work Page 32

Section 13. Interpretation according to circumstances.

MichTrina Evidence Library Work Page 33

MichTrina Evidence Library Work Page 34

MichTrina Evidence Library Work Page 35

MichTrina Evidence Library Work Page 36

ANGLO-ASEAN BANK & TRUST __ _